Two-thirds of homeowners believe their houses are immune from the woes of the housing market downturn. That was the consensus of a recent homeowner confidence survey conducted by the Zillow real estate group in the second quarter of 2008.
In what might be described as irrational exuberance: these same homeowners are forecasting even better days over the next six months. Zillow’s own real estate market reports found that 77 percent of U.S. homes lost value in the past 12 months.
Underscoring the wide gap between homeowners’ apparently inflated perception of their home values and the market reality, Zillow created the Home Value Misperception Index, which is the difference between the adjusted percentage of homeowners who believe their home value increased over the past year and the adjusted percentage of homes that have increased in value. Nationwide, the Q2 Home Value Misperception Index is 32, reflecting this broad gap. Those in the West, which has the highest proportion of homes that declined in value during the quarter (88 percent), seem to have the best grasp on reality with a Misperception Index of 23, while those in the South have the widest gap at 36.
Those numbers might bode well for home channel companies. The survey showed that homeowners who believe their homes have increased in value are significantly more likely to plan major home improvements (22 percent) than those who believe their home’s value has decreased (14 percent). The Zillow survey also found that 64 percent of homeowners are planning to undertake a home improvement project in the next six months.
Those stats are compatible with Ace Hardware’s recent findings. Ace said it surveyed 1,000 homeowners in February 2008 and found that nearly 75 percent of respondents said they plan to do home improvement projects within the six months following February, and 49 percent planned on spending more than $1,000 on home improvement projects this year.
Ace spokesman Christopher Boniface said the co-op’s same-store sales have started to climb in June and July, which it sees as an indicator that homeowners are focused on undertaking smaller, manageable projects to improve their homes. "Our lawn and garden category in particular has been especially strong this spring and summer selling season, and we anticipate our business to continue to trend upward for the rest of the year," he said.
According to Zillow’s survey, homeowner’s short-term outlook is even more optimistic than current perception, with 75 percent of homeowners expecting their home value to increase or stay the same over the next six months, while 25 percent expect a decline. The same level of optimism doesn’t extend to neighboring homes, however, as 42 percent expect values in their local market to drop, and 58 percent think values will increase or remain the same.
Stan Humphries, vp-data and analytics with Zillow, said the disconnect between homeowners’ perception of their homes and the reality of the market is due to a combination of “inattention and a fair bit of denial” that causes people to believe their home is insulated from the woes of the market that affect others, but not them.