A recent study conducted by Zillow finds what they call a “Not My House! Sentiment,” where despite the evidence that 77% of U.S. homes actually declined in value in the past year, 62% of homeowners believe their own home’s value has increased or stayed the same.
How can this be?
I think that part of the story has to do with the changes and tinkering we do to your homes coupled with our inability to understand that the changes we have made to fit our own individual taste might be ones that others don’t see or don’t value.
When someone moves to a new house they often make changes to their homes, breaking a wall, changing the tile, fixing a bathroom, adding a porch etc. As a consequence of this process the house is now tailored to its particular owner with its unique individual taste. Now their house is great for that person.
When a home owner compares their own house (who has been tailored to their own taste) to a house that was sold for a low amount down the street they can easily reason why the price of that other house (the one not tailored to their own taste) was so low. After all that other house was just not as nice, not as great, not as suited to their taste. There was something in that other house that was just not right, and this must be the reason it did not sell well. Right?
Can anyone get over this egocentric bias of looking at our own homes from the perspective of our own preferences? I suspect it is very hard to do, and maybe the only people who can do it well are those who are unable to tailor their homes (maybe due to some condo regulations). These people are going to be less susceptible to the “Not My House! Sentiment” and therefore understand more quickly that their values of their homes are going down. This will probably earn them some depressing sleepless nights thinking about this, but they might also be able to make better decisions about their homes.