Shiller is asked in the video how many houses he owns (two) and why – his answer – “My wife wants them”. (at the 7:50-min mark)

Robert Shiller, the Yale  economist who nailed the housing bubble before it burst, was on Bloomberg  Television with Trish Regan and Adam Johnson on Wednesday afternoon to  discuss the U.S. housing market.

As usual, Shiller was reluctant to declare that home prices had  bottomed.  He explained that the  housing market is a speculative one  and that there’s no telling, which way prices would go tomorrow.  He also  explained that there wasn’t much reason to believe that home prices would  appreciate back to levels seen during the last cycle.

Regan followed up with a question that got Shiller perked up.

“Then why buy a home?” she asked.  “People trap their savings in a  home.  They’re running an opportunity cost of not having that money liquid  to earn a better return in the market.  Why do it?”

“Absolutely!” Shiller exclaimed.  “Housing traditionally is not viewed  as a great investment.  It takes maintenance, it depreciates, it goes out  of style.  All of those are problems. And there’s technical progress in  housing.  So, new ones are better.”

These were some of the issues Shiller addressed in his classic book, Irrational  Exuberance.

He continued.

“So, why was it considered an investment?  That was a fad.  That  was an idea that took hold in the early 2000’s.  And I don’t expect it to  come back.  Not with the same force.  So people might just decide,  “Yeah, I’ll diversify my portfolio.  I’ll live in a rental.”  That is  a very sensible thing for many people to do.”

Adam Johnson also noted that this was in line with Shiller’s assessment that  real U.S. home price appreciation from 1890 to 1990 was just about 0  percent.  This is explained by the falling costs of construction and  labor.

For people who can’t wrap there heads around this, Shiller offers an  analogy.

“If you think investing in housing is such a great idea, why not invest in cars?” he asked.  “Buy a car, mothball it, and sell it in 20 years.   Obviously not a good idea because people won’t want our cars.  It’s the  same with our houses.  So, they’re not really an investment vehicle.”

Any homeowner knows that you can’t sell a home with 30-year-old roofing,  carpet, and kitchen appliances.  Sure, the home price might go up, but you  have to adjust for years of maintenance and renovations.

Read more:  http://www.businessinsider.com/robert-shiller-home-investment-a-fad-2013-2#ixzz2KEVPbaDg

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