Robert Shiller: US houses are going down

Feb 10, 2012

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Yale professor Robert Shiller says the US housing market “still hasn’t hit bottom”. He has a good record here, having developed the Case-Shiller index to track house-price trends and called the bubble of the 2000s. “I don’t see any reason to think that prices are going to start heading up dramatically now.”

Record low interest rates won’t boost housing, he says, claiming “the model hasn’t worked very well historically”. The problem is that “we’ve never had… a bubble… of this magnitude before”. As for house prices, the “big thing… is momentum. If it’s been going down, it will continue going down.”

This is bad news for the recovery, says Shiller. The housing wealth effect, where house prices encourage homeowners to spend, fell massively in the last five years. He calculates that every dollar spent on a new house creates $1.40 in economic activity, “but ownership is going down”.

The index scores US house prices at 130.39, below their 2006 high of 189.93, but above the 2000 100 level, meaning they could fall further. Prices are good value if you are looking for a place to live, says Shiller. But as an investment, real estate is “not a clever move”.

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  • 1. Our man in London

    (11 February 2012, 09:49AM)  Complain about this comment

    "...when America sneezes, England catches a cold". Never truer than today. Our housing market in London and the UK mirrors the USA-it's that 'special relationship' that our leaders bang on about. Ofcourse, Cameron is trying to wriggle out of it now the chips are down, but in the UK, real estate investment is also 'not a clvever move'. Don't come crying if you buy now and are in negative equity in a few years.

  • 2. PattiA

    (12 February 2012, 12:29PM)  Complain about this comment

    I was reading a thoughtful analysis of the US housing market only yesterday which reached a similar conclusion to that of Professor Schiller. The analysis looked at employment in the US and I found this section to be very revealing.

    "In addition the US Bureau of Labor Statistics has done its own analysis of this recession and compared it (unfavourably) to the past.

    In contrast, 47 months after the start of the most recent recession (November 2011), employment was still over 4 percent lower than when the recession began.

    Put another way non-farm employment peaked at 138 million in January 2008 and then fell to 129 million in February 2010 but has only risen back to 132 and a half million"

    http://www.mindfulmoney.co.uk/wp/author/shaun-richards/

    So there you have it employment has not improved much and so how will buy the houses to kick-start things? If you argue the other way round you hit the same problem...

  • 3. efrain alvarez

    (26 February 2012, 07:47PM)  Complain about this comment

    for people to buy home in this kind of economy prices should go down a little less interest and remain so for long and not continue to speculate but also insurance and taxes should be lowered ... and no more injustice and theft. and usa needs to be a lot more productive and not be a country of service work .. Everything you buy from outside or imported into exepcion of weapons and aircraft .. Chinese and Japanese will take over all for everything that occurs is out and with them

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