* Homeowners seen overconfident about home values in Q1
* Potential supply could threaten home prices
By Julie Haviv
NEW YORK, May 20 U.S. homeowners grew more confident about the value of their homes in the first quarter, but the optimism was at odds with actual declines in values, real estate website Zillow.com said on Thursday.
The overconfidence could portend an onslaught of new supply of homes for sale that would threaten prices.
Nationally, 50 percent of homeowners believe their home's value declined in the past year, according to the Zillow Q1 Homeowner Confidence Survey. But in reality, 65 percent of U.S. homes declined in value, according to Zillow's Q1 Real Estate Market Reports.
The numbers put Zillow's Home Value Misperception Index at a reading of 5, up from negative 2 in the fourth quarter. A reading of zero would indicate that homeowner perception is in line with reality, while a negative reading means homeowners are overly cynical.
"The specter of shadow inventory continues to loom over the housing market, and will certainly impede an earnest recovery," Stan Humphries, Zillow's chief economist, said in an interview. "Pent-up supply makes up part of this inventory."
Zillow said 7 percent of homeowners, which translates to 5.3 million homes, said they would be "very likely" to put their home on the market in the next 12 months if they see signs of an improving housing market.
In all of 2009, sales of existing homes totaled 5.2 million.
An additional 8 percent said they would be "likely" to put their home on the market, and another 14 percent said they would be "somewhat likely."
These homeowners represent "sidelined sellers," a component of "shadow inventory" that if materialized, could significantly delay timing of a market recovery.
On a regional basis, homeowners in the South and the Midwest were overly optimistic about the value of their homes, with a Misperception Index of 14 for the South and 4 for the Midwest.
Homeowners in the West and Northeast, on the other hand, were overly pessimistic about the value of their homes. The Western region's Misperception Index came in at negative 12, while the Northeast was at negative 2.
"It is clear that with 7 percent of homeowners saying they are 'very likely' to put their homes on the market with signs of a turnaround, we are in for a saw-toothed bottom, where inventory will begin to decrease, causing values to stabilize and some of these 5.3 million sidelined sellers to put their homes on the market, causing inventory to grow," Humphries said.
This pattern should repeat itself several times during the next three to five years before a real recovery in housing takes hold, he said. (Editing by Leslie Adler)