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<span style="font-size: 16px;">Yale's Robert Shiller on the Outlook for Home Prices</span>
<span style="font-size: 13px;">By Barbara Kiviat Wednesday, May. 06, 2009</span>
<span style="font-size: 11px;"><a href="http://URL: http://www.time.com/time/business/article/0,8599,1896583,00.html">URL: http://www.time.com/time/business/article/0,8599,1896583,00.html</a></span>
If you want to know what's going on in the U.S. housing market, chances are you follow the Case-Shiller index. Robert Shiller, the Yale University economist who helped create the home-price gauge, was something of a pop economist even before the real estate meltdown?a book published in 2000 warning about the coming crash in stocks made him a rock star of the last bubble, too. His latest book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters For Global Capitalism, was written with Univeristy of California, Berkeley economist George Akerlof. Shiller spoke with TIME's Barbara Kiviat.
<strong>People are talking about the housing market bottoming out. Do you believe it? </strong>
<em>The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate. There is also some sign of pick-up in pending-home sales. But to me the dominant fact is that prices are still falling. We've never seen a real estate market turn on a dime. For the longer horizon, though, it's possible that we are picking up. The other thing that is striking is that home prices have come down a lot, so they're no longer very overpriced. </em>
<strong>If houses are no longer overpriced, but prices are still falling, does that mean we're overshooting? </strong>
<em>That is the issue, whether we'll overshoot and end up being below, in inflation-adjusted terms, where we were in 1997. We're not quite down to where we were before, but we're getting close. Overshooting is typical in the stock market, but in the housing market, I don't know. We've never really had such a big, national bubble in the housing market before. </em>
<strong>Are there structural changes we need to make so that we don't have this sort of craziness again? </strong>
<em>Yes. This crisis was substantially caused by a failure to manage real estate risk. Notably, we got individual homeowners into a leveraged position typically with their entire life savings in real estate in one city, in one house. That's very risky. I have one proposal for continuous workout mortgages. Right now we think it's a great thing if banks will give struggling homeowners a workout. Why do we only want to come in after the fact? My vision for our future is that it should be planned for and priced into the initial mortgage. We could update mortgages in a way they protect people from things beyond their control? like high national unemployment. </em>
<strong>What else?</strong>
<em>Home-equity insurance. We want to have homeowners' insurance, which protects against things like fires, updated so that it protects against a loss of market value. Fires were a big problem hundreds of years ago. Houses were burning down all the time. Now we've developed a different problem?the residential housing market has gotten much more volatile. </em>
Interesting Reading,
Drew
<span style="font-size: 13px;">By Barbara Kiviat Wednesday, May. 06, 2009</span>
<span style="font-size: 11px;"><a href="http://URL: http://www.time.com/time/business/article/0,8599,1896583,00.html">URL: http://www.time.com/time/business/article/0,8599,1896583,00.html</a></span>
If you want to know what's going on in the U.S. housing market, chances are you follow the Case-Shiller index. Robert Shiller, the Yale University economist who helped create the home-price gauge, was something of a pop economist even before the real estate meltdown?a book published in 2000 warning about the coming crash in stocks made him a rock star of the last bubble, too. His latest book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters For Global Capitalism, was written with Univeristy of California, Berkeley economist George Akerlof. Shiller spoke with TIME's Barbara Kiviat.
<strong>People are talking about the housing market bottoming out. Do you believe it? </strong>
<em>The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate. There is also some sign of pick-up in pending-home sales. But to me the dominant fact is that prices are still falling. We've never seen a real estate market turn on a dime. For the longer horizon, though, it's possible that we are picking up. The other thing that is striking is that home prices have come down a lot, so they're no longer very overpriced. </em>
<strong>If houses are no longer overpriced, but prices are still falling, does that mean we're overshooting? </strong>
<em>That is the issue, whether we'll overshoot and end up being below, in inflation-adjusted terms, where we were in 1997. We're not quite down to where we were before, but we're getting close. Overshooting is typical in the stock market, but in the housing market, I don't know. We've never really had such a big, national bubble in the housing market before. </em>
<strong>Are there structural changes we need to make so that we don't have this sort of craziness again? </strong>
<em>Yes. This crisis was substantially caused by a failure to manage real estate risk. Notably, we got individual homeowners into a leveraged position typically with their entire life savings in real estate in one city, in one house. That's very risky. I have one proposal for continuous workout mortgages. Right now we think it's a great thing if banks will give struggling homeowners a workout. Why do we only want to come in after the fact? My vision for our future is that it should be planned for and priced into the initial mortgage. We could update mortgages in a way they protect people from things beyond their control? like high national unemployment. </em>
<strong>What else?</strong>
<em>Home-equity insurance. We want to have homeowners' insurance, which protects against things like fires, updated so that it protects against a loss of market value. Fires were a big problem hundreds of years ago. Houses were burning down all the time. Now we've developed a different problem?the residential housing market has gotten much more volatile. </em>
Interesting Reading,
Drew
