Homeowners no longer denying lost equity

Although more than half of those surveyed in Zillow.com's Q4 Homeowner Confidence Survey believe their own home lost value in 2008, more than two-thirds appear to believe that the worst may be over.

According to the fourth-quarter-2008 survey, some 70 percent of those surveyed believe their home's value will either increase or stay the same in the first six months of 2009, while only 30 percent expect a decrease in value.

Fifty-seven percent believe their home last value last year, up from 38 percent of those surveyed in the second quarter of 2008. In reality, 76 percent of all U.S. homes lost value in 2008, according to analysis of the Zillow Q4 Real Estate Market Reports.

With these new findings, Zillow's Home Value Misperception Index shrunk to 10 in the fourth quarter, from 16 in the third and 32 in the second quarter. An index of zero would mean homeowners' perceptions were in line with actual values.

"It's clear that the 'not my house' sentiment that was so prevalent in earlier surveys is waning, and homeowners are opening their eyes to the unfortunate reality of significant losses in home values across most of the country," said Dr. Stan Humphries, Zillow's vice president of data and analytics, in a statement. "That said, there's a curious optimism for homeowners when asked about the future -- most seem to believe we've hit a bottom and the worst has passed. Unfortunately, the data tells another story. With year-over-year home value losses continuing to accelerate, most areas of the country will see housing values get worse before they begin to stabilize."

With a Misperception Index of only 3 -- down from 20 in the third quarter -- the perception of homeowners in the Northeast was closest to reality. Well over half (57 percent) of Northeastern homeowners believe their own home's value declined during 2008, while 20 percent believed it stayed the same. According to Zillow's fourth-quarter data, 71 percent of homes in the Northeast declined in value during 2008.

Homeowners in the West, where values were hardest-hit, lost some of their optimism in the fourth quarter, but home values continued to edge downward, leaving Western homeowners' perceptions among the farthest from reality with a Misperception Index of 13 (the same as last quarter). Southerners' perceptions were farthest from reality, with a Misperception Index of 14.

Homeowner Perception by Region

(NOTE: Column percentages may not total 100 percent due to rounding)

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