A recent article in the press enterprise discusses the unrealistic expectations homeowners have about appreciation of their home values. In a poll done of prospective home buyers, Zillow.com found that 42% believed their home would appreciate by 7% a year. Traditionally, home values have appreciated at two to five percent annually. The article goes on to discuss how this is a troubling sign that after a major collapse in the real estate market that people would still expect their homes to appreciate at such a rapid rate.
While it is troubling that people believe their homes will appreciate so rapidly, I think it is largely due to the financial collapse that prospective homebuyers expect appreciation. The media has largely created this concept that the entire real estate market collapsed under unrealistic prices and imply that it will recover sometime in the future. The reality is that the market simply corrected its course to be in line with income. A market correction implies that the market has reset to where it needs to be and will continue along that path.
Also, most economists will assume that potential homebuyers are rational people who weigh the potential benefits of buying versus renting. Again, most homebuyers are looking for the right place to live and may struggle to deal with the rational argument once they fall in love with a home. What about you? How fast do you think home values will go up in Riverside over the next five years? Will they go up at all?