Homeowners Delusional On Values – More Dangerous Than Banking Crisis?


Zillow published a report today showing in fast relief just how out of touch the average home owner is when it comes to evaluating their own homes value.

Zillow’s survey says that half of home owners think their homes are worth the same as they were a year ago. 32 percent believe their home went up in value and 17 percent feel their home decreased in value.

Compare this to the reality that about 75% of all homes lost value since last year…we see just how delusional home owners really are.

It’s hard for me to fathom how the American public with hour after hour of news coverage on the real estate crisis, could still be so colossally blind to the truth.

Are they burned out…are they sticking their heads in the sand?

Is it too much to take to recognize the house you paid $400,000 three years ago is really worth only $200,000 today?

It just so happened a few minutes before reading the Zillow survey, I’d heard a pundit on CNBC say, “All across the US, the only real estate market is the foreclosure market”…meaining the only sales being executed were those done between banks and investors on foreclosures. He mentioned in some locales 80% of all resales were foreclosures.

If home owners’ perceptions are so glaringly wrong about the values of their homes, I can see why the “only the real estate market is the foreclosure market”. Folks who can’t face the truth don’t price their home to sell and the market shouts the truth at them…usually in vain.

It dawned on me if home owners don’t get their expectations in check, put their homes on the market at realistic prices, it won’t matter how loose or tight mortgage underwriting is or whether Bernanke can get mortgage reform passed.

It won’t matter because, there will be no one standing in line to borrow!

This is potentially more dangerous than a banking crisis. It’s like have a party and no one shows. Bernanke and Paulson are busy saving the banks and mortgage securitizers so the mortgage industry can stay operational for all the new borrowers once this hiccup is solved. But what if after all that, American’s can’t find a house to buy at a market price and sit on the sidelines?

It’s what happened to Japan when they hit the wall. Their central bank dropped rates to zero and still couldn’t get people to borrow.

What if the banks, now that they have government support, hang on to their foreclosure properties deciding to wait for a better market in which to sell? Between asleep homeowners and greedy bankers, the real estate market could be the next big “freeze”.

There is only one thing worst than dropping home values…frozen home values. At least if they are dropping, an end is coming. With frozen home values, a state of limbo exists.

This would really be the nightmare scenario everyone is trying to avoid. This is why Congress is having such trouble putting money in the hands of foreclosure victims. They don’t want to do anything that will stall the dropping of home values. They’d better watch out. If they give the banks too much support, there’s no motivation to liquidate foreclosed homes either.

As the Zillow report reminds us, you can’t legislate intelligence or awareness…and without it, our housing market could be in for the freeze no government or banking official can do anything about.


About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog, TheMortgageInsider.net, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


  1. I absolutely agree that people are out of touch. When the housing market first stalled, Pulte homes here in Las Vegas took action. They cut the price on the homes they were selling, sometimes by as much as $100,000. People who had bought homes shortly before the cut were protesting in the streets and complaining to anyone who would listen, demanding to get money back. These people sued the builder and lost, the seller can set whatever price people are willing to pay. Pulte saw the writing on the wall and slashed prices in order to move inventory. The move worked for them while most other builders wound up sitting on a lot of inventory as the market stalled. People saw it as the “greedy” builder taking advantage of them, I’m sure they still think that their homes are worth what they paid for them.

  2. Richard Newquist on

    Your observations are correct! I am a real estate agent and my buyers have made offers on short-sales where the banks haven’t even responded. . .AT ALL! They’re waiting to see what they get out of the so-called “bailout”.

    Sellers keep their prices high because they’re waiting for someone to cruise by and buy their house on an impulse. They know they’re overpriced but they aren’t aware of all the information out there that buyers can get to give them (buyers) a very good idea about COMPARATIVE MARKET VALUE.

    Owner-Sellers also under-estimate what is involved in marketing and sales. I haven’t met ONE of them who has a marketing strategy. They don’t know who to target, where to advertise or how to get the message out there. Their perception is that agents do very little and get a big commission so they’ll do it themselves. . . and, unfortunately, they’re wrong.

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