Despite widely covered housing woes and significant market data to the contrary, homeowners appear to have high confidence in the value of their own home, with even greater optimism for the next six months, according to a recent survey from Zillow.com® and Harris Interactive.

Indeed, nearly two out of three (62 percent) of homeowners surveyed think their home value has increased or remained the same in the past year. Unfortunately, the reality of the market is not quite as bright. Seventy-seven percent of U.S. homes lost value in the past 12 months, while only 19 percent increased and 5 percent remained the same according to Zillow.com, an online real estate community where homeowners, buyers, sellers, real estate agents and mortgage professionals share information. Whether it’s apathy, confusion or just plain denial, many homeowners seem to believe the housing crisis affects every other home but their own, underscoring a wide gap between homeowners’ inflated perception of their home values and the market reality.

To monitor this perception-reality gap over time, Zillow has created the Home Value Misperception Index, which is the difference between the adjusted percentage of homeowners who believe their home value increased over the past year and the adjusted percentage of homes that have increased in value. Nationwide, the Q2 Home Value Misperception Index is 32, reflecting this broad gap. Those in the West, which has the highest proportion of homes (88 percent) that declined in value during the quarter, seem to have the best grasp on reality with a Misperception Index of 23, while those in the South have the widest gap at 36.

Homeowner short-term outlook is even more optimistic than current perception as three out of four (75 percent) homeowners expect their home value will increase or stay the same over the next six months, with 25 percent expecting a decline. The same level of optimism doesn’t extend to neighboring homes, however, as 42 percent expect values in their local market to drop and 58 percent think values will increase or remain the same.

For those in the home businesses, the survey found reason for optimism. Two-thirds (64 percent) of the homeowners surveyed revealed they are planning home-investment activities in the next six months. For example, 56 percent are planning major and/or minor home improvements, with 17 percent planning major improvements (e.g. replacing the roof, remodeling the kitchen) and 49 percent planning minor ones (e.g. repaint or wallpaper a room). Of interest is how the perceived change in home value can impact home investment plans. Homeowners who believe their home has increased in value are significantly more likely to plan major home improvements (22 percent) than those who believe their home’s value has decreased (14 percent).

Additionally, seven percent report planning home financing activity and seven percent report planning to buy or sell a primary or secondary residence.

“Our survey reveals a wide gap between the perception homeowners have about their own home’s value and the realities of a market in which three-quarters of homes declined in value in the past year. We attribute this gap to a combination of inattention and a fair bit of denial that causes people to believe their home is insulated from the woes of the market that affect others, but not them,” says Dr. Stan Humphries, vice-president of data and analytics at Zillow. “This sentiment is also carried through in homeowner confidence for the short-term as more people expect their home to perform better in the next six months than the market and recent past. Although many homeowners may believe the worst is over, we think this level of optimism is out of sync with actual market performance.”