42% of prospective homebuyers believe home values will increase 7% annually in the coming years, according to a poll by Zillow. These answers reflect the inadequate knowledge most prospective homebuyers have about the most important financial decision of their lives.
In a normal market, home prices appreciate between 2% to 3% per year (the historical pace of consumer inflation), according to the Case-Shiller home price index. Since the Lesser Depression continues its stranglehold on the housing market, however, home price increases will be even less than consumer inflation for years. [For more information regarding home pricing, see the first tuesday Market Chart, California tiered home pricing and the October 2011 first tuesday article, The equilibrium trendline: the mean-price anchor.]
The poll asked additional questions related to the process of purchasing a home, and the responses reflected an obvious gap between a homebuyer’s knowledge and informed actions.
41% of the homebuyers polled believe private mortgage insurance (PMI) is required on all home purchases regardless of the down payment. However, PMI is only required when less than 20% down is provided.
Additionally, 56% said an appraisal determines whether a home is in good condition, which is the exclusive purpose of a home inspection report.
first tuesday take: Multiple listing service (MLS) brokers and their agents have much work to do to get it right when putting a property under contract. Homebuyers are allowed to be too distracted by the prospect of their white picket fence and three-car garage to pay much attention to the “minor” details of the actual purchase.
Decades of public policy pushed by the government (primarily by the tax code, government-guaranteed mortgages and ever lower interest rates – most of which have or will likely end) have lulled Americans into a false optimism about the pricing and housing information that will take years of economic depression – and a generation of buyers – to undo. [For more information regarding public policy and homeownership, see the October 2010 first tuesday article, Is homeownership a luxury or a necessity? and the September 2010 first tuesday article, The era of the financially illiterate homebuyer.]
When it comes to locating and negotiating the price of a home, shopping for mortgages or maintaining a property, most homebuyers don’t have a clue where to begin.
Enter the gatekeepers of real estate — brokers and their agents — who are charged with the task of educating their principals and shedding light on the realities of the current housing market. Along with their fiduciary duty to demand up-front disclosures from sellers and seller’s agents, buyer’s agents are also duty-bound to their buyers to ensure they are completely aware of the consequences flowing from the financial decisions they make. [For more information regarding disclosures, see the November 2010 first tuesday article, Holmes v. Summer: dilatory disclosures and the damage done; for additional commentary regarding legal and tax advice, see the September 2011 first tuesday article, Raising the bar of real estate advice.]
As times of economic anguish do induce great change, responsible brokers and their agents now have a prime opportunity to serve and educate their buyers and sellers who — now more than ever — are willing to learn.
Re: “Zillow: Buyers ever optimistic on home value appreciation” from Housing Wire
ReaItors created this disaster.
If you think real estate agents are going to tell their potential buyers the TRUTH about home ownership….. well then I have a bridge I would like to talk to you about. The one and only thing a real estate agent thinks about is his/her commission from the sale, and they will NEVER do anything that may cause the sale not to happen.
The Government doesn’t know how to protect the consumer and it isn’t the government’s job to do so. The false notion that the government will protect you or anyone else (except illegals) is what got us into this mess in the first place.
The one thing we cannot teach is responsibility for your actions, morals, and ethics. This financial melt-down has proven that neither party to a real estate transactions has either of the above.
I wonder if these homebuyers had borrowed the money for their homes from their parents or grandparents would they have walked away and screwed them like they have screwed the lenders that did loan them the money. Unfortunately the answer is more like than not…. yes they would have.
Part of the dumbing-down of America. Government steps in to convince people not to educate themselves and not to do their own due diligence. After all, we have institutions like credit rating agencies to do those things. What could possibly go wrong?
I suspect much of it is the all-too-human approach of preferring an easy, comfortable fiction over uncomfortable facts and effort. It takes effort to educate yourself about mortgages, loans and the real estate process. It has been – intentionally, I suspect – made complicated and confusing to those not employed within the field, and many of those who are, still don’t understand all of it. You cannot force people to think or choose wisely. If they choose fictions, while frustrating, what is a person to do? Insisting that they are wrong tends to produce the opposite reaction of what one hopes for: the party clinging to the fiction holds ever tighter with each contrary and painful (they seem to believe) fact presented to them.
I learned to be content with presenting the facts, then observing who wishes to know more and helping them along. Don’t fret over those who deny facts; there will always be some. Beating your head against the brick wall of someone’s unfounded belief system is a complete waste of time. For them, learning the hard way is the only way…and even then, they might not take away the correct lesson.