• Nationwide, the average error rate among consumers in actual versus predicted home value growth in 2014 was almost 4 percentage points.
• In a majority of the metros surveyed, recent home buyers or above-water owners were the best forecasters.

When asked about their expectations for home value growth, Americans tend to anchor their responses in recent history rather than a more realistic assessment of the future. However, some groups are better forecasters than others (sadly for former Dallas Federal Reserve Bank President, Richard Fisher, it wasn’t dry cleaners[1]).

In January 2014, we asked 10,000 Americans in 20 metro areas to predict how local home values would perform over the next year.[2] A year later, we can now compare these predictions with the actual performance of the Zillow Home Value Index (ZHVI) in those same metro areas.

In general, demographic groups who are closer to the market – those more likely to be or have recently been involved in purchasing a home, or with an active interest in the market – tend to make more accurate forecasts compared to other groups (table 1).

Across all respondents, the average error – the gap between the average expected appreciation and actual appreciation – was 4 percentage points. In the 20 metro areas surveyed, respondents in January 2014 said that they expected home values to grow 3 percent on average across those 20 metros through January 2015. Looking back from January 2015, actual growth was 7 percent, on average, across those markets. Recent home buyers beat the field by a full percentage point, with an average error of only 3 percentage points. Above-water homeowners (homeowners with positive equity in their home) also performed well (average error of 3.3 percentage points), as did first-time home buyers (average error of 3.4 percentage points).

In 11 of the 20 metros surveyed, recent home buyers or above-water owners were the best forecasters. Of course, there were some outliers. In Dallas-Fort Worth and San Francisco, college-aged young adults performed best[3] – perhaps because, in these particularly hot metros, the typically exuberant expectations of many college-aged respondents proved accurate in 2014.

Across all metros, Boston’s recent buyers did the best, predicting 2014 home value growth almost exactly in line with actual results. Washington, D.C.’s early career millennials (aged 23 to 27) and recent home buyers also did very well.

In general, the worst performing groups were college-aged young adults (aged 18 to 22) with an average error of 4.6 percentage points. Current renters (also off by 4.6 percentage points, on average) and senior citizens (average error of 4.5 percentage points) also proved poor forecasters. As for the worst of the worst, that distinction goes to college-aged young adults in Denver, who on average predicted that home values would fall by nearly 5 percent in 2014. In reality, home values grew by nearly 15 percent.

[1] Fisher is reported by the New York Times to have said that his local dry cleaner outperformed the Federal Reserve staff in forecasting.

[2] Every six months, The Zillow Housing Confidence Index (ZHCI) asks residents of 20 metro areas a series of questions related to their views on past local market performance, how they expect their local market to perform in the future and their sentiments toward the value of homeownership in general. Survey responses are compiled into the Housing Confidence Index, calculated for homeowners, renters and the population as a whole. The ZHCI is administered by Pulsenomics LLC.

[3] The survey samples for college-aged respondents are small in some metros.