Fannie Mae: Do Homeowners See How Much Home Equity They Are Sitting On?

8/4/15

The housing market recovery over the past few years has been even more halting than the economic recovery. According to the Fannie Mae's Economic & Strategic Research (ESR) group, this is likely due to tepid household income growth weighing down housing markets.

Now, a new analysis identifies an additional factor that may be weighing down housing markets: Homeowners may be underestimating their home equity.

Fannie Mae's National Housing Survey™ (NHS) data suggest that borrowers who underestimate their home equity also likely underestimate:

1) how large a down payment they could make with their home equity;

2) their chances of qualifying for mortgages (assuming a large down payment is required), and, therefore;

3) their opportunities for selling their current homes and for buying different homes.

As a result, a widespread "negative perception gap" or "appreciation gap" may be suppressing housing and mortgage market activity by inhibiting many interested homeowners from purchasing another home or from moving to advance their job and career prospects.

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