A Psychological Bubble for Homeowners

[flashl]

Denial can be a powerful psychological force.

According to a survey released earlier this week by Zillow.com, the real estate Website that calculates home values, denial is precisely what appears to be at work in the minds of many homeowners across the United States. They have managed to convince themselves that, despite ample evidence to the contrary, their homes actually increased in value in 2007, or remained the same.

According to the survey, conducted for Zillow.com by Harris Interactive, not only do 77 percent of homeowners from around the country believe the value of their home has increased or stayed the same, but 67 percent say they plan to make major home improvements this year. About a third of the respondents say they are likely to take out a home equity loan, or refinance their mortgage.

This in spite of a recent Merrill Lynch prediction that “housing prices will remain in free fall,” declining 15 percent in 2008 and 10 percent in 2009, “with more depreciation likely beyond the forecast period,” even if the Federal Reserve continues to cut interest rates.


NY Times

A perfect example of compartmented information.

[TalkingDog]

1. We are lucky to live in an area where the bubble is fairly stable, yet

even though we know there is a potential for a decrease in value, we're still using our equity line for home improvement.

We are pouring a concrete floor in our dirt floor basement, part of which will become a root cellar so we can expand our garden.

We are installing solar panels.

The implication that all loans or refinancing are inherently bad or somehow smacks of denial is shortsighted.


My Favorite Master Artist: Karen Parker GhostWoman Studios

[edhopper]

3. There is nothing wrong with

HELOCs for improvement if you are on a sound financial footing and if you realize that the money you spend on improvement does not increase the value of your home by the same amount. Used to make your home a better place to live, while not hurting your financial health works fine.
The problem is that so much of the MEWs over the last few years have been for lifestyle. Cars, cruises, plasma screens. Your home as an ATM is a bad idea.

[TalkingDog]

6. To quote Bob Dylan. There's a hard rain, gonna fall....n/t

My Favorite Master Artist: Karen Parker GhostWoman Studios

[Eurobabe]

2. Zillow is a complete bullshit site

IMHO. More bubbly?

[edhopper]

4. Don't understand your comment.

What part of the survey do you question? It seems to show that most home owners are delusional about the worth of their homes. Something I have found with almost everyone I speak to. And that they do not realize that homes are going to lose 30% - 40% of their value over the next few years.
All that is true.

[Eurobabe]

5. I totally agree with you. Zillow is part of the

problem. As you inferred in your original post, Zillow makes people think that their houses are worth a whole heck of alot more than they really are in today's market.

[TalkingDog]

7. Probably pumped up by realtors looking to improve their chances....

of selling to a sucker who thinks his house is worth more.


My Favorite Master Artist: Karen Parker GhostWoman Studios

[Eurobabe]

8. So typical of RE agents, unscrupulous ones

Tell the homeowners their house is worth alot more than it is, get the listing, and then after no traffic, get them to drop the price. I saw this so frequently when I was in the biz. :eyes:

[Quakerfriend]

10. ditto. I would love to know who owns zillow. Anyone know?

[drexel dave]

9. If you live in the suburbs, get out now while you can

the suburbs are the greatest misallocation of resources in the history of mankind, and are beginning to fall.

Find a city, preferrably one with a low-cost of living and an ample water supply.