A new report from Zillow reports that the housing market could see millions of additional homes for sale over the next year, as homeowner perceptions are increasingly skewed from reality.
Zillow’s quarterly home owner survey is an effort to gauge home owners’ perceptions of the housing market versus reality. The study establishes a “Home Value Misperception Index” which is designed to measure the difference between reality and perception. The index is currently at 5, rising from a reading of -2 in the fourth quarter of 2009. The index is at zero when expectations match reality. Positive number indicate that homeowners are overvaluing their homes.
Seven percent of the survey respondents said they were “very likely” to put their home on the market in the next year if they see some improvement. If this number holds true, we could see 5.3 million additional homes hit the market this year. In contrast, 5.2 million homes were sold in the United States in 2009.
Twenty-nine percent of respondents were either “very likely”, “likely”, or “somewhat likely” to put their homes on the market. Along with the massive number of homes going through the foreclosure process, and the distressed properties already on the market, we could very well see price decreases as the year goes on, and with extraordinarily low mortgage rates it could turn into a full-blown buyers market.
If this were to play out, we could see a prolonged recovery that goes well into the middle of the decade, with housing prices rising and falling in cycles as optimistic sellers increase the housing supply when the market moves in a positive direction.
It is important to take the Zillow report with a huge grain of salt, because of the wording of the survey questions. In particular we need to pay attention to the wording in the study that says respondents will put their homes for sale “if they see signs of the housing market improving”. If a substantial amount of supply is added to the market, housing prices will decrease, and these home owners are less likely to see signs of improvement, and will thus be less likely to actually attempt to sell.
How long do you think the recovery will take? Let us know in the comments below.
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