New statistics show that the year of denial may be coming to an end. Everyone knows that home prices have been declining, but no one wants to admit that their own properties have been affected.

I’ll admit to watching homes in my neighborhood sell for less while rationalizing my own inflated value saying “Well, my place is different because…blah, blah, blah.” But, now that values have fallen so dramatically, it’s pretty hard to pretend it isn’t happening.

Inman News reports on the shrinking “misperception index”:

“Fifty-seven percent believe their home last value last year, up from 38 percent of those surveyed in the second quarter of 2008. In reality, 76 percent of all U.S. homes lost value in 2008, according to analysis of the Zillow Q4 Real Estate Market Reports.

With these new findings, Zillow’s Home Value Misperception Index shrunk to 10 in the fourth quarter, from 16 in the third and 32 in the second quarter. An index of zero would mean homeowners’ perceptions were in line with actual values.”

As more people admit to their declining equity, existing HELOC borrowers become more likely to accept line reductions imposed by banks and potential borrowers worry about the risks of taking out a HELOC in today’s market.

Although the majority of borrowers feel that the worst is over, many feel safer taking out a fixed-rate home equity loan rather than a line of credit that has a chance of being cut should the market continue to decline throughout 2009.

See Also:

HELOC vs. Home Equity Loan

Is a HELOC Right for You?

Tags | credit crisis, equity, Heloc, home equity line of credit, mortgages