Denial: Didn't we do this stage already?

"Denial is a defense mechanism in which a person is faced with a fact that is too painful to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence." --Wikipedia entry.

Zillow leaked some survey results today showing that 77 percent of homeowners polled nationwide said they believe their home has held or increased value in 2007, despite all the news reports of the sagging market, credit crunch and depressed values.

At last month's Real Estate Connect conference in New York, Barry Ritholtz, chief market strategist of Ritholtz Research and CEO and director of equity research for Fusion IQ, noted the similarities between the market and the five stages of grief learned in college psychology class.

As in grief, Ritholtz pinned denial as the first stage. When the market began to slow, some analysts and experts, and especially industry groups like the National Association of Realtors, said the slowdown would be short-lived.

At the next stage, there was an admission that there was a housing problem but a denial that it was impacting the overall economy. (Read the full Inman News story.)

One would think that we've been past this denial stage for some time, but Zillow's survey conducted by Harris Interactive, paints a different picture among homeowners. About a third of homeowners surveyed (36 percent) said they believe their homes had actually increased in value during 2007.

This positive attitude on the surface seems like a good thing. Market psychology plays a role in housing. But if you're a Realtor dealing with a homeowner who's out of touch with how his market is performing, this is actually more like a devil in sheep's clothing. Realtors know how difficult it can be to work with unrealistic sellers.

Bernice Ross, a real estate coach and author, addressed this in a recent column, explaining ways agents can use technology to persuade unrealistic sellers into the right listing price. Read, "How to tell if a listing is overpriced" for more.

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