Homeowner Confidence Out of Whack – But Can you Blame Them?

RISMEDIA, November 23, 2009—Each quarter, Zillow tracks Homeowner Confidence across the U.S. and more specifically, how homeowners’ perception of their own home’s value compares to reality. The company has seen a lot of changes in the past six quarters, as homeowners have inched closer to reality by acknowledging widespread home value slides.

However, the third quarter of 2009 is a different story in both market behavior and homeowner perception. As individual markets behaved very differently (some improving, some flat, many still continuing to decline), homeowner perception was literally all over the map. And for the first time, one sector of homeowners — those in the Northeast — was overly cynical about home values. Meanwhile in the hardest-hit region of the country, the Western states, homeowners continued to be overly optimistic when evaluating the value of their own homes.

Nationwide, when asked about their own home’s value over the past year:

• 25% think their home’s value has increased

• 26% think their home’s value has stayed the same

• 49% think their home’s value has decreased

In reality, 72 percent of U.S. homes lost value over the past year, and 22 percent of homes increased in value. That’s fewer homes declining versus Q2 (83%), and a smaller Misperception Index of 10 (vs. 13 in Q2 and 17 in Q3 2008). A Misperception Index of zero would mean homeowners’ perceptions were in line with actual values.

Here’s how homeowner perception vs. reality looks across the country.

Meanwhile, when asked about future home values, a trend continued that we’ve seen over the past year — a large number of homeowners thinks their home’s value will increase over the coming six months. Or put another way, the vast majority of homeowners – 84 percent – believes their home has reached a bottom and will not decline any further. Specifically:

• 41% think their home’s value will increase in the next six months

• 43% think their home’s value will stay the same

• 17% of homeowners think their home’s value will decrease

We’ve got a lot of opposing forces in the coming six months that may impact what happens with home values, and it’s getting more and more difficult to predict. On the one hand, increasing foreclosures and, possibly, rising mortgage rates could contribute to further home declines in many parts of the country. Meanwhile, the extended and expanded homebuyer tax credits have the potential to stimulate demand to counteract these declines. Regardless, it seems some homeowners are assuming a V-shaped recovery to home values (i.e. immediate gains in value) versus the L-shaped recovery (i.e. home values staying flat for some time) most economists predict.

Overly optimistic homeowners? Probably. Confused homeowners? Absolutely. And I don’t blame them one bit.

For more information, visit Zillow.com.