Consumer Confidence Drops in the U.S. Housing Market, One in Three Homeowners Now Think Worst is Yet to Come

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According to Zillow's new Q-2, 2010 Homeowner Confidence Survey, homeowners are more pessimistic about the short-term future of home values in their local market than they have been in the past three quarters. One-third (33 percent) believe home values in their local housing market have not yet reached a bottom, while 38 percent believe they have already reached a bottom.

More than one-quarter (28 percent) of U.S. homeowners said home values in their local real estate market will decrease in the next six months, up from 20 percent in the first quarter. Additionally, less than one-third (30 percent) believe home values in their local market will increase, down from 42 percent in the first quarter.

Despite the increasing pessimism, a large number of homeowners anxiously await the opportunity to sell. Five percent of U.S. homeowners say they are very likely to put their home on the market in the next six months if they see signs of a real estate market turnaround. This translates into 3.8 million homes with the potential to come into the market. By comparison, 5.2 million existing homes were sold in all of 2009.

Looking backward, homeowners also became slightly more pessimistic about the performance of their own homes' values in the past year. Less than a quarter (24 percent) of homeowners said their home had increased in value in the past year, compared to 27 percent in the first quarter. In reality, 34 percent of homes increased in value in the second quarter, according to the Zillow's Q2 Real Estate Market Reports.

"As homeowners have been so inundated recently with news of declining home sales post-tax credit, it's no surprise that they would become more pessimistic about the future of home values," said Dr. Stan Humphries, chief economist at Zillow.com. "Homeowners have become much more responsive to current market conditions than they were just two years ago, when a more typical reaction was denial.

"Given this sentiment, we're surprised so many homeowners believe their market has already bottomed. Although our Q2 reports indicated signs of stabilization in 30 percent of markets we cover, we're concerned that this was at least partly due to the homebuyer tax credits. We're already seeing payback for the credits in the form of declining home sales, and this trend will push up inventory levels and exert downward pressure on home values. Add in the inventory from the millions of sidelined sellers and we'll take more steps back. Our forecast remains largely unchanged: We're in for an L-shaped recovery that will likely keep annualized home value appreciation very low for the next three to five years."

According to Zillow's report, long-term home value expectations vary by region. Looking further into the future, the majority of homeowners believe their own homes' values will either increase (27 percent) or stay the same (35 percent) in the next 12 months, while 12 percent expect a decrease and 26 percent don't know.

Of those who expect their home's value to increase, the median expectation is a rise of 6 percent, although that varies by geography. Northeastern and Western homeowners who expect an increase anticipate a median rise of 10 percent, while Southern and Midwestern homeowners expect a median increase of 5 percent. Those who expect their home's value to decrease in the next year, anticipate a median decrease of 10 percent.

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