Two Studies Reveal Homeowners’ Market Perceptions

American homeowners are much more realistic about their own homes' values than they were one year ago, but are more optimistic about the future than at any other time in the past year.

Sixty percent of homeowners believe their own home lost value in the past 12 months, according to the Zillow Q2 Homeowner Confidence Survey. In reality, 83% of homes lost value during that time, according to the company's second-quarter Real Estate Market Reports.

Zillow found that 81% of homeowners believe their own homes' values will not decline in the next six months – the highest percentage on record since the first quarterly Homeowner Confidence Survey, which was fielded in the second quarter of 2008. Meanwhile, only 19% of homeowners believe their own home will decrease in value over the next six months.

Homeowners' relatively more realistic perceptions of home values over the last 12 months resulted in a Zillow Home Value Misperception Index of 13 – down significantly from a Misperception Index of 32 one year ago. An index value of zero would mean homeowners' perceptions were in line with reality, Zillow explains.

Although homeowner perception in the second quarter shifted closer to reality when compared to 12 months ago, the Misperception Index rose from six in the first quarter. In both the first and second quarters, 60% of homeowners said their home had declined in value over the past year. But with 83 percent of homes actually losing value in the second quarter compared with 81 percent in the first quarter, the gap between perception and reality increased.

The survey also indicated that many homeowners could be waiting on the sidelines to sell. When asked about future plans to sell, 29% of homeowners said they would be at least ‘somewhat likely’ to put their homes on the market in the next 12 months if they saw signs of a real estate market turnaround, creating ‘shadow inventory’ that could slow a recovery.

Zillow's chief economist, Stan Humphries, notes that with each quarter that passes, borrowers view the worst as being behind them.

‘Hope springs eternal for the U.S. homeowner,’ says Dr. Stan Humphries, Zillow chief economist.

‘Unfortunately, that has not been the case thus far, and it's far from clear that it's the case today," he adds.
"Despite some signs of slowing depreciation in many markets in the second quarter – the height of the 2009 home-buying season – there are many market fundamentals that will challenge home prices in the near-term: high for-sale inventory levels, foreclosures, negative equity and price-to-rent ratios that still aren't back to historical levels yet.’

Homeowners in the West are again the most realistic about their own homes' values, with a Misperception Index of seven, but 81% of them believe their homes' values will increase or stay the same in the coming six months. Southerners were furthest from reality, with a Misperception Index of 18, and were even more optimistic about the future of their homes' values, with 83% saying their homes' values would increase or remain the same.

Borrowers who are at least somewhat likely to put their home up for sale in the next year said improved local employment statistics will be a primary indicator of a real estate turnaround, a change from last quarter, when most homeowners said that increasing home sales would indicate a turnaround. Recently reported statistics from the U.S. Department of Labor and Statistics show unemployment at 9.4% nationally in July compared to 9.5% in June.

Among employed Americans, only 35% have adequate savings to weather a job loss lasting more than six months, finds a new study released by Bankrate Inc. The poll, conducted by Princeton Survey Research Associates International, was a national random-digit-dialed phone study of 1,001 adults 18 or older, including 509 who are currently employed.

That study also found that 48% of Americans worry about losing or being unable to afford their homes, while 92% believe that a home is a good investment for the future.

‘These results provide an interesting illustration of the public's mindset in a difficult economy,’ says Julie Bandy, editor in chief at Bankrate.com. ‘While nine out of 10 still believe in the American dream of homeownership, nearly half worry about losing their homes."

SOURCES: Zillow, Bankrate

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