Months of government bailouts and stock market volatility have brought Americans' perception of the values of their own homes closer to reality, but surprisingly, half of U.S. home owners still believe their homes are insulated from the nation's home value declines, says a third-quarter home owner confidence survey by Zillow.

Forty-nine percent of home owners said they think their own home's value has increased or stayed the same over the past year. Nearly three-quarters of homes, however, have lost value in the past 12 months, say Zillow third-quarter real estate market reports.

Home owners aren't quite as confident as they were in the second quarter, when 62 percent said their homes either had increased in value or remained the same, but a significant gap between the reality of home values and home owners' perceptions persists.

Zillow's Home Value Misperception Index, which measures homeowners' perceptions of their homes' value over time, shrank to 16 in the third quarter from 32 in the second quarter.

An index of zero would mean homeowners' perceptions were in line with actual values.

Homeowners in the South and West had the most accurate perceptions of home values. In those regions, where 67 percent and 85 percent of homes declined in value, respectively, the Misperception Index was 13. Northeasterners' perceptions were most out of line with reality: 71 percent of homes there lost value, and the Misperception Index was 20.

"After one of the most turbulent quarters in history for the U.S. economy and housing market, you'd expect the reality of dropping home values to start sinking in," says Stan Humphries, Zillow vice president of data and analytics. "We are seeing some movement toward more accurate perceptions of home value declines, but there's still a significant gap between reality and perception."

He adds, "We're seeing a fascinating distinction in consumer psychology—on the one hand, home owners appear to understand the reality of today's economy and are curbing their household spending, but on the other hand they still aren't ready to admit that these woes might extend to their own homes. There's clearly still some denial."

The latest survey showed that home owners are slightly less optimistic about the future than they were in the second quarter, but believe the next six months will bring more stability to the housing market than the last 12.

While slightly more than half of the home owners surveyed believe their home's value decreased over the last year, only 40 percent think it will decrease in the next six months.

Another 40 percent believe their home's value will stay the same, while only 21 percent think their home's value will increase.

Those surveyed were slightly more optimistic in the second quarter, when 32 percent of home owners predicted their home's value would increase.

Home owners were less optimistic about their neighbors' homes, with 57 percent saying home values in their local market would decrease over the next six months.

Fewer survey participants said they expect to buy or sell a home in the near future. Just 3 percent said they plan to sell their home in the next six months, down from 5 percent last quarter. Similarly, 3 percent said they plan to buy a home during that period, down from 4 percent in the second quarter.

Also, fewer of those surveyed said they are planning home-related finance activity, with just 5 percent planning to refinance or to take out a second mortgage or home equity loan in the next six months, down from 7 percent in the second quarter.

Separately, 53 percent of survey participants said they are planning either major home-improvement projects, such as replacing the roof or remodeling the kitchen, or minor projects, such as painting or installing a new garbage disposal.

Also, many home owners said they expect to spend less on home- and non-home-related expenses in the near future. Thirty-five percent said they would spend either somewhat or significantly less on things such as new appliances or decor in the next 12 months, while 16 percent said they would spend significantly less. Only 3 percent said they expect to spend significantly more.

Home owners had similar responses when asked how much they would spend during the 2008 holiday season, with 52 percent saying they would spend less than last year, and just 3 percent saying they would spend more.

Zillow, based in Seattle, refers to its zillow.com Web site as "an online real estate community," where home owners, buyers, sellers, real estate agents, and mortgage professionals find and share information about homes, for free.