The most pessimistic homeowners reside in the West, even as home values in many California and Colorado metros have stabilized over the past year, according to the Zillow Q1 Real Estate Market Reports. Eighteen percent of Western homeowners believe that their home gained value over the past year when in reality 31 percent of Western homes gained value. That resulted in a Misperception Index(6) of -12 (a Misperception Index of zero would indicate that homeowner perception is in line with reality, and a negative Misperception Index indicates that homeowners are overly cynical about their own homes' values).
On the other end of the spectrum were Southern homeowners, who were overly optimistic, even as many Southern markets continue to see significant decreases in home values. Thirty-four percent of Southern homeowners said that their home gained value over the past year when in reality 27 percent of homes gained value. That resulted in a Misperception Index of 14.
Homeowners in the Northeast and Midwest recorded Misperception Indexes of -2 and 4, respectively.
"It is clear that there is a lag between market realities and public perceptions of home values. For quite a while after the market peak, Western homeowners continued to believe their own homes' values were doing better than they were in reality," said Zillow Chief Economist Dr. Stan Humphries. "Conversely, after years of press coverage about declining home values, homeowner perceptions are now in line with market conditions from early last year, although the Western market has improved since then.
"We see the opposite phenomena in the South where home values in most markets – with the exception of Florida – took some time to begin falling. Many markets there have recently joined the housing recession in earnest, with five of the nine Southern states tracked by Zillow hitting their home value peak after 2007, but homeowners there are likely to believe the downturn has not affected them. This could also be a result of the fact that most attention has been on the hardest-hit areas of California, Florida, Nevada, Arizona and Michigan, and homeowners outside of these markets may have less information about what has happened in their local markets.
"However, when homeowners across the country do start to believe that their home's value has stopped declining, we can expect to see a lot of new inventory entering the market via sidelined sellers. This added inventory, combined with current elevated inventory levels and continued high rates of foreclosure in many areas, will likely serve to keep home values treading near the bottom for several years. Inventory must come down for home values to go up."
Homeowner Perception of Future Home Values
Looking forward, homeowners are fairly positive about their own home's value over the next six months, but like Misperception Index, the degree of optimism varies wildly among regions. In the Northeast, more than half (51 percent) of homeowners believe their home's value will increase over the next six months while in the Midwest less than one-third (29 percent) of homeowners believe their home's value will increase. Nationally, 39 percent of homeowners believe their own home's value will increase during the next six months.
