So Quicken Loans does this thing every month where they compare the estimated home value that homeowners put on their refinance applications to the value that is ultimately determined by the appraiser. They then report on the percentage by which the appraised value differs from the homeowner's estimate, calling it their Home Price Perception Index or HPPI. They track this index over time and across metro areas.
Taken at face value all it really reports on is the difference in these two estimates of real estate values. I would be hesitant to make any assumptions that appraised values are the "true" values - especially given some of the really bad appraisals that I have seen in my real estate career. Not to mention that, because appraisers are always looking back 6 months, their measure of value is going to lag the market's value.
But it's nevertheless an interesting metric to track. For instance, the graph below shows that over the last 10 years homeowners have usually been more optimistic about their home values than appraisers. However, the exception to that was a roughly two year period shortly after the housing market turned around from the bubble crash. Go figure.
Now, it should be no surprise that most of the time homeowners place a higher value on their property than appraisers. For one there is the endowment effect. Then there is the very well known Garrison Keillor effect, where everyone's house is above average. Finally, there is the possibility that since these are refinance applications the applicants actually believe that putting in a higher number will help their refinance prospects.
When comparing the index across cities it becomes clear that Chicago has the second most optimistic homeowners relative to appraisers. See the graph below. And surprisingly the hottest markets - e.g. San Francisco, Seattle, and Portland - have the least optimistic homeowners. It's as if Chicago homeowners don't realize that they are in one of the slowest appreciating markets in the country and the homeowners in the fastest growing areas don't realize where they are either. Go figure again.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.