Home Buyers And Their Terrible Home Price & Mortgage Rate Predictions

Home values climb twice as fast as U.S. consumers predict, and mortgage rates drop more often than expected.

June 10, 2020 by Dan Green

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The Housing Headline

U.S. home prices increased by double what consumers expected this year.

The News Behind The Housing Headline

Home values climbed 5.7 percent in the twelve months ending March 2020, more than doubling U.S. consumer predictions.

The data comes from two government-backed reports – the Federal Housing Finance Agency’s Home Price Index and Fannie Mae’s National Housing Survey, respectively.

The Home Price Index report summarizes changes in home prices nationwide. The National Housing Survey captures U.S. consumer sentiment and asks for predictions about the future of U.S. housing.

One year ago, consumers predicted home values would climb two-and-a-half percent over the course of the year. That prediction missed the mark by a lot.

Consumers regularly underestimate how fast home prices change.

Since 2012, Fannie Mae has collected monthly consumer home price predictions.

  • What consumers say will happen with home prices: +2.5 percent per year
  • What has actually happened with home prices: +5.7 percent per year

The Home Price Index report shows that home values are higher up on an annual basis for 97 consecutive months.

Why This Housing News Matters To You

When people think about buying a house, they base their decision-making on some idea of the future.

  • Where do I see my life in a few years?
  • Will homes be harder to afford when my lease runs out?
  • Are mortgage rates going up or going down?

Some of these questions are less complicated than others to forecast.

As aspiring homebuyers, we can make reasonable assumptions about the future of our leases, our relationships, and our families. We also have some level of visibility into the future of our work, our incomes, and our savings.

However, what we cannot predict is the market.

We can’t know where home values will be in the future, we can’t know what outside forces may affect our lives, nor can we know where mortgage rates will be.

And, we stink when we try.

If consumer predictions came true, U.S. home values would have increased 23 percent since 2012. Instead, values jumped 58 percent.

Consumers are equally terrible at predicting mortgage rates.

Last year at this time, 90 percent of consumers predicted to Fannie Mae that mortgage rates had bottomed out. Since that survey, mortgage rates have dropped more than half a percentage point and interest rates are at their lowest levels ever.

At today’s mortgage rates, a home buyer with a $216,000 mortgage pays approximately $1,000 to its lender each month.

So, don’t base your decision to buy a home on what you think home values or mortgage rates will do in the future. Buy a home because the time is right for you.

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