Homeowners could have a great deal of trouble selling their properties today if they stubbornly refuse to lower asking prices to meet current market values. Still, many homeowners remain trapped in the boom days when their neighbors sold properties for prices much higher than would be reasonable today.
This dynamic is vividly demonstrated by Zillow's second-quarter Homeowner Confidence Survey, released Wednesday.
Despite widely covered housing woes and significant market data to the contrary, homeowners reveal high confidence in the value of their own home with even greater optimism for the next six months, according to the Zillow® Q2 Homeowner Confidence Survey of 1,361 U.S. homeowners conducted by Harris Interactive®....
Nearly two out of three (62%) homeowners think their home value has increased or remained the same in the past year. Unfortunately, the reality of the market is not quite as bright; in fact, it's getting worse. Seventy-seven percent of U.S. homes lost value in the past 12 months, according to preliminary analysis of Zillow's Q2 Real Estate Market Reports, due to be released August 12, while only 19 percent increased and 5 percent remained the same. Whether it's apathy, confusion or just plain denial, homeowners seem to believe the housing crisis affects every other home but "not my house," underscoring a wide gap between homeowners' inflated perception of their home values and the gloomy market reality.
To monitor this perception-reality gap over time, Zillow has created the Home Value Misperception Index, which is the difference between the adjusted percentage of homeowners who believe their home value increased over the past year and the adjusted percentage of homes that have increased in value.... Nationwide, the Q2 Home Value Misperception Index is 32, reflecting this broad gap. Those in the West, which has the highest proportion of homes (88%) that declined in value during the quarter, seem to have the best grasp on reality with a Misperception Index of 23, while those in the South have the widest gap at 36.
So what's behind this divergence of perception and reality? Here's what Stan Humphries, Zillow's vice president of data and analytics, has to say:
Our survey reveals a wide gap between the perception homeowners have about their own home's value and the realities of a market in which three-quarters of homes declined in value in the past year. We attribute this gap to a combination of inattention and a fair bit of denial that causes people to believe their home is insulated from the woes of the market that affect others, but not them.... Although many homeowners may believe the worst is over, we think this level of optimism is out of sync with actual market performance.