Slump? What slump? Home values OK

NEW YORK (CNNMoney.com) -- Most Americans still believe their homes are worth more than they were a year ago, although the fraction who now think their home is losing value has more than doubled compared to a year ago, according to a survey released Monday.

The survey conducted by the Boston Consulting Group found that 55 percent of those surveyed believe their home would sell for more money now than it would have a year ago, while 15 percent believe it is worth less, and 27 percent believe it's worth about the same. The rest didn't answer the question or didn't know.

A year ago the same question found 59 percent believed their home was worth more than it had been in 2005, while only 7 percent thought it was worth less and 32 percent thought it was worth about the same.

Some of the recent readings from the real estate market are not quite as bullish on home prices as are the majority of Americans. The National Association of Realtors' report on May home sales, released Monday, found a 2.1 percent drop in median home prices for existing home sales compared to a year ago, the tenth straight month that closely-watched reading has shown a year-over-year decline.

Michael Silverstein, a BCG senior partner and the research firm's consumer spending expert, says he believes the strong faith in home values shown in the latest survey results is due to homeowners long-term view of their real estate investment. He pointed to another question on the survey that found 85 percent believing their house will be worth more in five years than it is today.

"American consumers think long-term and they have a five-to-seven year time frame about the value of their home," he said. "I think what people want for their home is more than [what] they paid for it. They are looking at the glass and saying it's half-full and I'm going to make some money if I sold it today. Do they know what their house was worth precisely a year ago, and what it's worth today? The answer to that is no."

The confidence that many homeowners have in their homes' value is one reason that the pace of home sales has slumped, and the number of homes on the market have soared in the recent readings, according to housing economists. Home sellers often won't cut their price to spur a sale unless there is a pressing need to move, the way holders of other assets like stocks are likely to do.

"There are home buyers out there for the right prices" said Mike Larson, real estate analyst with Weiss Research, independent investment research firm. "What's going to fix that Everest-like inventory of homes for sale is sellers becoming more reasonable and cutting prices, the way that home builders have done."

Silverstein also said that much of the weakness in housing prices is in markets that saw a sharp run-up in prices during the home sale and building boom of 2004 and 2005.

"There are at least 20 percent of markets with a real estate supply-demand imbalance, and those are influencing the sales and price data we're seeing nationwide," he said. "In 50 percent of the markets where the balance is not so bad, the prices are relatively stable."

The survey found that only 49 percent of those in the Northeast think their home is worth more now than a year ago, compared with 51 percent in the Midwest, 56 percent in the South and 64 percent in the West.

The survey was conducted by phone from May 31 to June 3, with 1,007 responses. The margin of error is plus or minus 3 percent. The survey found 68 percent of those surveyed owning their home.

The survey also found that 76 percent of those surveyed said the current value of their home had no impact on how they spend money on other items, while 16 percent said that it was forcing them to cut back on spending, and 7 percent were spending with confidence because of their home's value. Those numbers are almost identical to the split of answers in last year's survey.

Even among the 15 percent of homeowners who said their home was worth less than a year ago, 58 percent said their home value was not affecting their spending, while 35 percent said they were cutting back.

"This not surprising," said Silverstein. "We're seeing 4 or 5 percent of homeowners having credit issues related to their homes or subprime mortgages. The vast majority are quite stable."

The survey also found 74 percent are totally or fairly confident they could sell their home within the next six months for a price that they think it is worth.

Still the survey found nearly two-thirds of Americans believe real estate to be a good or excellent investment, only 27 percent said they are very or somewhat likely to purchase a better home in the next five years. But it's not home values that keeping them from trading up -- only 10 percent of those saying they're not looking to buy a better home cited home prices as the region.

Instead of buying new homes, those surveyed said they are looking to improve the home they have, with 69 percent saying they are very or somewhat likely to make renovations or improvements in the next year.