Half of U.S. homeowners live in a state of denial about falling home values, according to a third quarter homeowner confidence survey released Wednesday by real estate information providers Zillow.com. The survey found that while 74 percent of homes have lost value during the past year, a full 49 percent of homeowners said they believe their home had either maintained or gained value during that time. Homeowners might be overly optimistic about home values, but at least the perception gap has lessened somewhat during the last quarter. The survey showed that Zillow's Home Value Misperception Index, which measures homeowners' perceptions of their home's value over time, decreased to 16 in the third quarter, down 50 percent from 32 in the second quarter. An index of zero would mean homeowners' perceptions agreed with actual values, so the lower the number, the more realistic the perception. Read the survey results. "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," said Dr. Stan Humphries, Zillow vice president of data and analytics, in a press statement. "We are seeing some movement toward more accurate perceptions of home value declines, but there's still a significant gap between reality and perception." Southern and western homeowners showed the most accurate home value perceptions, according to the report. The southern states showed 67 percent of homes decreased in value and western states showed 85 percent of homes declined in value. Homeowners in both areas demonstrated a Misperception Index of 13. Homeowners in northeastern states showed perceptions most out of line with reality, Zillow said. While 71 percent of homes in the northeast lost value, the Misperception Index came in at 20. A slim majority of U.S. homeowners -- 51 percent -- said they believed their home values had decreased. Only 40 percent said they think home values will continue to decrease, however; but 57 percent did say they expect home values in their local market will continue to decline during the next six months. "We're seeing a fascinating distinction in consumer psychology -- on the one hand, homeowners 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," Humpries said. "There's clearly still some denial." Write to Diana Golobay at diana.golobay@housingwire.com.