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More than 42 percent of prospective home buyers believe home values increase by about 7 percent each year, according to a recent survey by ""Zillow."":http://www.zillow.com/ This estimation is out of line for the current economic times and high even for years prior to the housing crisis.
[IMAGE]In a normal market, home values tend to increase by only 2 percent to 5 percent per year, according to Zillow.
""It's troubling that we're still in the midst of one of the worst housing recessions in history, and yet prospective buyers continue to have such high expectations for home value appreciation,"" said Dr. Stan Humphries, chief economist at Zillow.
""Over-estimation of the appreciation potential will lead many to buy real estate when the time in which they plan to live in the house may make renting a better strategy,"" Humphries added.
[COLUMN_BREAK]While home buyers revealed a lack of understanding of home values, respondents answered about 65 percent of questions correctly.
For example, 87 percent of respondents understand that closing costs are negotiable.
Areas of the home buying process that respondents did not understand fully include mortgage insurance and homeowner's insurance requirements and the difference between appraisals and inspections.
About 41 percent of home buyers believe private mortgage insurance is mandatory. However, private mortgage insurance is generally only necessary when a buyer's down payment is less than 20 percent.
When it comes to homeowner's insurance, which is mandatory, about 37 percent of home buyers believe this insurance is optional.
In addition, about 56 percent of homebuyers responded that the purpose of appraisals is to determine a home's condition.
Lastly, Zillow reports that nearly half of prospective home buyers are unclear about when they officially become the owner of a home. About 47 percent believe it is when they sign a purchase contract.
""It's great that buyers seem to have a fairly solid grasp of the home-buying process, but since this is one of the biggest financial decisions of most people's lives, it's even more important that they understand how that investment will appreciate after they sign the papers,"" Humphries stated.
