Home : Blogs : Spencer Rascoff : Spencer's Blog

Homeowners are delusional

This won't be new news to any of you listing agents working with frustrated sellers, but most homeowners haven't adjusted their expectations of value yet. Everyone realizes that house values have declined; but no one wants to believe that their home has declined in value. Here's the data from ZillowBlog to prove just how delusional homeowners are when they ask themselves "what is my house worth?":

62% of U.S. Homeowners believe their home’s value has increased or stayed the same in the past year. In reality, 77% of U.S. homes have declined in value over the past 12 months.
While only 38% of homeowners think their home has declined in value, about 77% of homes actually have declined in the last year
People living in the West seem to be a little more realistic, with 44% believing their home’s value has increased (28%) or stayed the same (16%); however more homes in the West have lost value, with 88% of Western homes declining over the past year.

Here's today's front page of the San Francisco Chronicle business section:

If you’d like to learn more about what’s happening to real estate prices in your area, next week we’ll release our Q2 Real Estate Market Reports, which chart home value changes for 165 metropolitan statistical areas, the largest report of its kind. New this quarter, we’ll also look at % of homes sold for a loss, and % of home sales that were foreclosures.

You can tune in to our Q2 Market Reports Conference Call on August 12 at 11am PT, to hear Dr. Stan Humphries discuss these reports as well as some more findings from today’s survey. To sign up for the Web version of this call, visit here. Or, you can dial in directly at 1-800-240-2430.

Like what you're reading? Then subscribe to my blog to receive updates.

Posted by Spencer Rascoff on 08/06/2008 08:23 PM

Comments (37)

zillow, housing data, housing prices

This post has been included in Washington Information
Post is included in group: Realtors®

37 Comments on Homeowners are delusional

AUG

2008

When someone sells their home the neighbors all encourage them to sell for more. (conflict of interest) I had a client tell me that all of his neighbors believed his home was worth over $1 Million. Unfortunately they did not have the most valuable home in a a neighborhood that the highest closing in history was about $800,000.

Everyday in the Real Estate Marketplace, I encounter sellers that need to be educated on actual property valuations. It has been my experience that since people were purchasing during the housing boom, the appraisals performed were at least questionable. The justification for them was always the overwhelming sense that property values would continue to climb. Now that the appraisals are being more carefully screened, the values tend to be more in line with past real estate performance indices. While sellers may be tempted to overprice their property based on the belief that the value has either remained the same or improved, I gently remind them that in the current economic climate the price is determined by what the buyer, the appraiser and the bank is willing to pay, approve and ultimately spend.

Spencer: your quote

62% of U.S. Homeowners believe their home's value has increased or stayed the same in the past year. In reality, 77% of U.S. homes have declined in value over the past 12 months.

While only 38% of homeowners think their home has declined in value, about 77% of homes actually have declined in the last year

That is right on it. People do not understand that some areas have seen a decline and others have been flat.

Interesting post, Maybe I can use this to keep my clients real..

I had one of those types on a listing appt. recently. Its all good.

Great stats! I am having the same issue as i'm sure most of you are. It all comes down to educating the sellers from the very start.

A neighbor has an uncanny knack for keeping his house just about $100k over the market. He follows the market down - like walking downstairs.

So true! I look forward to hearing your report next week!

Has anybody else been brave enough to do a CMA on their own home? Scary stuff

What's unfortunate is losing listings because of being honest...

Spencer, Very interesting post. I agree with Paul, with peoples expectations and perceptions be skewed, I hate losing listings for being honest. By I do it anyway. Mike

When you are talking about the value of people's homes, you end up dealing with a lot of emotion on the seller's side. This makes it even harder to drive the point home.

am thinking that those who think their home has not lost value also think that the answer to the energy crisis is offshore drilling... perception as we know is not necesarily real, but it is reality.

thanks for doing this post

Real Estate is LOCAL and this is a prime example....the East coast, particularly the Metro or Tri-State area has had adjustments in the resale of homes but on a town by town basis....actual SOLD comps show prices have stayed the same. It all depends on the town or the inventory...here.

People are still living the dream............ and still dreaming

Spencer:

I know that I was pretty hard on you guys in the beginning but I can't even begin to tell you how valuable your data has been to me since moving to Bellevue. Thanks for the update and I am looking forward to your 2nd Quarter stats...I plan to compare them against the ones from OFHEO.

This certainly is still a problem in New Hampshire. I have had buyers not be able to get offers accepted the the sellers simply won't face realty! I don't know how they will ever be convinced. Hopefully, you report will help.

For example - see - www.realstorynj.com

The Garden State continues to offer real estate opportunities that are worth exploring.

While other states have seen home prices plummet, homes in New Jersey have generally maintained their value. The chart below compares the first quarter median sales price of existing single-family homes in 2007 and 2008 within New Jersey metropolitan statistical areas (MSA) to other areas throughout the nation.

MSA	1^st Quarter 2007	1^st Quarter 2008	Percent Change (%)
Allentown-Bethlehem-Easton, PA-NJ	$247,300	$237,000	-4.2
Atlanta-Sandy Springs- Marietta, GA	$170,400	$154,000	-9.6
Atlantic City, NJ	$264,600	$277,400	+4.8
Camden, NJ-Philadelphia, PA	$222,500	$220,900	-0.7
Edison, NJ-NY	$363,500	$361,200	-0.6
Grand Rapids, MI	$129,700	$102,800	-20.7
Las Vegas-Paradise, NV	$310,100	$247,600	-20.2
Miami-Ft. Lauderdale-Miami Beach, FL	$385,300	$318,900	-17.2
Newark, NJ-NY-PA	$423,700	$409,300	-3.4
Northern NJ-NY-Long Island	$463,700	$445,400	-3.9
Phoenix-Mesa-Scottsdale, AZ	$262,500	$222,200	-15.4
San Diego-Carlsbad- San Marcos, CA	$595,200	$459,000	-22.9
Trenton-Ewing, NJ	$283,800	$288,200	+1.6
Washington-Arlington-Alexandria, DC-VA-MD-WV	$427,800	$371,800	-13.1
Wayne, NJ-NY-White Plains	$521,400	$491,900	-5.7

Source: National Association of REALTORS^® --- www.realstorynj.com

AND, I agree that anyone listing their home should listen to the actual market comps...not their neighbors...thnks for the post.

Yes indeed - delusional is the perfect word and behind that is in denial living in fantasy-land.

If only sellers understood how much more it is costing them to hold on so tightly to their belief that THEIR house IS worth that much even when there is no data, and certainly no offers, to support it.

You are right on the mark!

Interest post and it looks as if it so true. yes, delusional is a perfect term unless they are going to disneyland.

Oh you have so hit the nail on the head!

Real Estate values not going down mean they are worth exploring???.. That certainly sounds delusional.. especially when the median price of a home is cheaper in Las Vegas then Trenton or Atlantic City...

AUG

2008

Oh, you have so hit the nail on the head on this one! Thanks for putting it in perspective.

Spencer,

This post, in my personal opinion is your best blog post ever! This is such accurate useful information, and would be so helpful to me in my daily challenges with Borrowers and their unrealistic thoughts about the market. I would like to share your graph and perhaps your entire post with several of my current Borrowers. May I have your permission to do so? Please let me know... Thank you again for the information...

Tiffany Taylor

Founder/CEO

Platinum Funding Group Inc.

Thanks for all of your great comments. Yes Tiffany you may of course share this post and any other that you'd like. Here is a link to all of the data.

You are right. It's sad but true. Many home owners simply do not want to believe "their" home cold have declined.

Spencer, Yes there are some delusional sellers out there, in Mi since we have been in a down turn before the rest of the country with the "big 3" restructuring, most of the ones are realistic. If not they get a dose of reality when we meet. If they still don't get it, I just don't take the listing, too frustrating, when I know it "just ain't gonna happen".

Few sellers have taken the mandatory dose of reality in pricing their homes...we refuse to "buy" a listing using a price that the seller "have to" have...and I sincerely question the ethics of the realtors who do...that should be a violation of some sort of realtor oath if not our ethics code, hmmm ?

OMG Spencer...

I never made it past the title just cuzz I'm laughing so hard :)

Delusional? Indeed :)

TLW...ROAR!

And WHY shouldn't homeowners be delusional? WE are telling tham that values aren't decreasing. Seriously. Real estate agents all over the country are buying into the NAR line that all real estate is local and that the big declines are isolated to Florida, Nevada and California... and the Northeast... but everyone else is ok. And if you read a lot of agent web pages and listen to the Realtorsauruses, they will tell you that it is the best year ever... And most of them are just poop pumps... they don't even look at the local numbers.

I for one am not a fan of Zillow's market stats especially in my area of Northwest Suburban Chicago. If you guys use the closed recorded deeds from our area that makes your report a minimum of 6 months or more behind the curve or the times. Anything you get from there is already "ancient history". You don't even sell real estate but I guess thanks for your opinion?

Hey Lyn- Spencer's point that home owners don't have accurate perceptions of whether their home is gaining/losing value is a result of a Harris Interactiveconducted poll of 1,361 homeowners. This data has nothing to do with Zillow's numbers.

He then compared that to what is actually happening based on Zillow's Quarterly Home Value reports. These market reports are not based on closed recorded deeds, as you mention in your comment, but rather the Zillow Home Value Index. To get this index we generate valuation several times a week on more than 67 million homes, calculating historical values back to 1997, and then aggregate these valuations into indexes at the neighborhood, ZIP, city, county, metro, and national levels. So the number isn't solely tied to a data set of closed transactions, but rather what all homes (whether for sale or not) are doing with respect to fluctuating values.

(for a comprehensive explanation of the Zillow Home Value Index methodology compared to that OFHEO and Case-Shiller Indexes, here is a great blog post by our VP of Data & Analytics)

Hope this helps clear up where the data in the post is originating!

AUG

2008

Spencer that is some great information to have. It happens with refinancing a home as well. When I ask the client what they believe the home is worth, they are ALWAYS over in the estimate. Then when the appraisal comes in far lower than thier expectations, the just want to argue and put it on the appraiser. People are strange.

MAR

I just tried to put in a bid on a house that was not maintained at all. The house would need gutted, there are roof leaks, pipe leaks, yard drainage concerns, etc. The realtor would not stop talking and was trying to tell me the whole house could be fixed for $8000!! She also tried to tell me that I could get all new kitchen cabinets for the kitchen for $1000! I would say it is not JUST the homeowners that are delusional. When you have a $225k house in foreclosure that has been sitting for at least 6 months and is in barely liveable condition, you don't list the house for $195 and tell me the market is still moving!!! What planet are the realtors living on?

People like me who wanted to buy but watched the "flipping" price them out now want we they deserve, a FULL market correction. We are bitter to realtors that we see as part of the problem that got us here. The American Dream? Banks, realtors and flippers whored it out and know it's time to deal with the consequences. Realtors need to feel some of the pain. That means as many "realtors" and companies that were created, need to disappear. THAT is market correction.

P.S. Realtors, many of us have been watching the market much closer than you. Waiting for an opportunity to get back into the American Dream you whored. Stop treating us like we have no idea what we are talking about.

Shane - Thanks for leaving a comment, always great to hear the homeowner's perceptive on things such as this. Please notice the date this survey was conducted, in June/July 2008 and the post was written in Aug 2008. Back then many homeowners were starting to see the writing on the wall, but weren't quite there yet, thus the delta in perception and reality.

Interestingly, we at Zillow have since run this survey again for Q4 2008 and found these two things to be much more inline. The results were:

Homeowner Confidence vs. Actual Home Value Change National Survey results:

My Home's Value Has Increased Over Past Year: 25%
My Home's Value Has Decreased Over Past Year: 57%
My Home's Value Has Stayed the Same Over Past Year: 18%

Actual U.S. Home Values (according to Zillow data)

Home Values Increasing: 20%
Home Values Decreasing: 76%
Home Values Staying the Same: 4%

Confidence About Own Home vs. Neighbors' Homes

My Own Home's Value Will Decrease in Next Six Months: 30%
Home Values in My Local Market Will Decrease in Next Six Months: 47%

We post reports such as this in our Press Room, plus other reports such as the Local Value Reports, if you would like to continue monitoring trends in your area.