Yale’s Shiller to Moneynews: Home Prices Could Plunge Even Lower

Friday, 29 Jun 2012 01:08 PM

By Forrest Jones and Kathleen Walter

Home prices have risen lately but nothing suggests that a concrete recovery for the sector is taking place, and prices could fall even lower, Yale economist and author Robert Shiller said.

"I think it's a good chance that home prices may fall still further," Shiller told Newsmax.TV in an exclusive interview.

He also is co-creator of the S&P/Case-Shiller Home Price Indices, the widely followed measure of U.S. home prices. The measure revealed in April that on average home prices increased 1.3 percent from March for both 10-city and 20-city composites.
The gain came after seven consecutive months of falling home prices as measured by both indices.

Home prices tend to rise in the summer, and the increase in April may be reflecting that trend.

But he still warns that prices may dip yet again.

"I say that despite the fact that they have suddenly started going up. It's a little hard to interpret that because it's partly just the summer seasonal approach," he said. "We normally have a seasonal increase at this time."

"Things are looking up, and this could be the turning point, but it is way too early to tell and the weakness of the economy and the coming foreclosures and the European crisis are all risks that are very much relevant on the horizon for real estate," said Shiller, also the author of “Finance and the Good Society.”

The housing market bubbled enormously and later burst, helping throw the U.S. economy into the worst downturn since the Great Depression, making attempts to predict a turning point for the housing market difficult.

"I don't think we have any science of this, especially after the biggest real estate bubble in our history. We are kind of still in unchartered territory. So I don't think there is any expert who can tell you what is coming with housing. It continues to surprise," Shiller said.

"One of the surprises is there are major housing bubbles in Europe, right now, despite the fact that Europe is a troubled economy and in many places in recession. That just shows how paradoxical these markets can be." Shiller said.

"I don't have any confidence in my ability to forecast them but what I do feel confident about is there remain uncertainties and risks. Housing is still not a riskless investment. We shouldn't be thinking that we are sure that we are at a bottom. We are not sure."

History shows that by its nature, housing is a sector that takes a long time to recover.

Just look to Florida as an example.

"I am reminded of the Florida land bubble of the 1920s. That peaked in 1926 and it was almost 50 years before Florida went through another boom like that," Shiller said.

"People maybe learn their lessons and it may take a generation before the same folly repeats itself.”

Home ownership has long been the American dream, and it still will be for most out there.

But it's not the only seal of success.

Other assets will create wealth, while a burgeoning home rental market has its advantages as well, especially amid such unprecedented economic times.

"The home ownership rate is declining and it appears to reflect a modest change in our attitude. People are realizing that home ownership is not for everybody, that you don’t have to own a home to prove that you’ve arrived and that renting has lots of advantages," Shiller said.

"You’re freer to move, you can change jobs quickly and conveniently, you don’t have to mow the lawn, everything is taken care of for you, and then you can invest your money in something else, which might yield a much better return," he said.

"I think people are more thinking along these lines. So the home ownership rate is likely to decline somewhat further. But the American dream will still be, for many or most people, connected to home ownership.”

Turning to the recent Supreme Court decision to uphold the constitutionality of President Barack Obama's Patient Protection and Affordable Care Act, Shiller praised the decision, pointing out the economy benefits when its citizens are covered by health insurance.

"Reason has triumphed, and we have now a more comprehensive insurance and we should have a better functioning insurance system for our health and that matters enormously. It matters more than just about everything else."