Once again, U.S. homeowners are in denial

Results of 2008 Q3 Homeowner Confidence Survey

There's no doubt we've been deluged with depressing economic and housing news over the past few months. Every day is a new headline, every channel has a new pundit and the recession debate has shifted from "if" to "how long."
Given this, when fielding our Q3 Homeowner Confidence Survey earlier this month, we expected the results to be markedly different than last quarter, when 62% of homeowners thought their home's value had increased or stayed the same (despite 77% of homes losing value). The Q3 Survey, fielded October 7-9, 2008 (the worst week in stock market history, by the way), asked homeowners their perception of their home's value over the past year, and what they think will happen to their home's value in the coming months.The results are kind of baffling. While the perception gap did narrow, still half of U.S. homeowners do not think their home's value has declined over the past year. Specifically:

* 32% think their home's value increased in the past 12 months

* 17% think their home's value held steady

* 51% think their home's value declined In reality

three-quarters (74%) of U.S. homes lost value in the past 12 months, according to Zillow's Q3 data.The following chart breaks down responses by region, and you can see that homeowners in different areas of the country hold a more (or less) realistic view. In the West, where the most homes are losing value (85% of homes in the West declined over the past year), homeowners are more realistic - with 65% of homeowners saying the value of their own homes has declined. In the Northeast, the perception gap is widest.
Meanwhile, optimism continues into the future for a good chunk of homeowners: * 21% believe their home's value will increase in the coming 6 months * 40% believe their home's value will stay the same * 40% believe their home's value will decrease.




Is this optimism (or denial) necessarily a bad thing? Maybe not, if you plan to stay in your home for the next several years and aren't making financial decisions today based on presumed equity. It's sort of like the way I'm avoiding looking at my 401k statements - doesn't affect me today, so why get depressed. But for sellers, an unrealistic view of your home's value today can only hurt - you, when your home sits on the market for months, and the local market at large, with a continued and growing glut of inventory that's just not selling.

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