Denial

From CNN/Money:

What slump? Homeowners in denial

Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey.

The survey was conducted by Harris Interactive for Zillow.com, a Web site that gives estimated home values.

The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.

“This survey reveals that despite the data to the contrary, people either aren’t paying attention to their housing market or are in denial about their own home’s value,” said Stan Humphries, Zillow.com vice president of data & analytics.
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Figures from the National Association of Realtors show that the median price of an existing home sold in 2007 fell 1.4% from 2006, the first decline in that key price measure the trade group has ever recorded. The Realtors released an economic outlook Thursday that forecast another 1.2% decline in prices in 2008.

And those price readings under represent declines in the nation’s weakest markets, which have taken a big hit to sales volume.

The S&P Case/Shiller, a closely watched index that tracks home values of all homes in the nation’s largest markets, not just those that are sold, showed about an 8% drop in home values in November compared to a year earlier, the worst on record.

Hugh Moore, a principal at Guerite Advisors, a research and financial advisory firm, said he wasn’t surprised by the denial demonstrated in the survey results. He said research into previous housing busts shows homeowners are slow to accept that their home has lost value.

“It’s a visceral reaction; you lock into the highest price you ever heard, and you’re going to hang onto it,” Moore said. “It’s a grieving process. First you go through denial and disbelief. Acceptance is the last step you get to.”
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But he said the denial will make recovery from this current housing slump take longer and be more difficult because home sellers will be slow to adjust their asking price to the new market reality.

“Studies have shown stock markets have public markets that realign themselves rather quickly,” Moore said. “But housing busts affect the economy twice as much, because home ownership is so much more widespread, and they take twice as long to correct themselves.”