Shiller has been too conservative on his predictions because he’s an ivory-tower guy. If he were to talk to potential home sellers, he’d find that there aren’t many – if any – who have to move so badly that they would sell for “substantially lower” prices. The next phase after the frenzy will be the stagnant/plateau stage where the demand thins out and sellers wait for that perfect nuclear family with 2.2 kids to come along some day.
Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market’s hottest trades. He’s notably concerned about housing, stocks and cryptocurrencies, where he sees a “Wild West” mentality among investors.
“We have a lot of upward momentum now. So, waiting a year probably won’t bring house prices down,” Shiller said.
According to Shiller, current home price action is also reminiscent of 2003, two years before the slide began. He notes the dip happened gradually and ultimately crashed around the 2008 financial crisis.
“If you go out three or five years, I could imagine they’d [prices] be substantially lower than they are now, and maybe that’s a good thing,” he added. “Not from the standpoint of a homeowner, but it’s from the standpoint of a prospective homeowner. It’s a good thing. If we have more houses, we’re better off.”
Is the video clip above supposed to include this quote:
“Not from the standpoint of a homeowner, but it’s from the standpoint of a prospective homeowner. It’s a good thing. If we have more houses, we’re better off.”
When he says, “prospective homeowner,” Shiller means “homebuyers, correct?”
Yes, and I’m not sure his quotes in video were the same as in print here (where I clipped mine):
https://www.cnbc.com/2021/05/23/robert-shiller-sees-wild-west-in-housing-stock-and-crypto-markets.html
Even though the record run in stocks and cryptos has been taking a break over the past couple of weeks, Shiller is worried. He’s particularly uneasy about the latest housing boom.
“In real terms, the home prices have never been so high. My data goes back over 100 years, so this is something,” said Shiller, co-founder of the S&P CoreLogic Case-Shiller home price index. “I don’t think that the whole thing is explained by central bank policy. There is something about the sociology of markets that’s happening.”
How do how prices go down if owners have skin in the game?
They don’t. They might stagnate, but no one is giving away their home if they have equity.
Exactly. Bank clerks are the only people who give them away.
“There is something about the sociology of markets that’s happening.”
Is there a more emotionally-charged purchase than that of an owner-occupied home? Layer a bidding-war environment on top of that, with participants who have lost “auctions” over and over and who are determined to win one, and you really have yourself quite a scene.
Is there a more emotionally-charged purchase than that of an owner-occupied home?
I can’t think of any. Most are planning to raise their family there forever.
Most emotionally charged AND most expensive purchase people make.
And we put agents in charge who have passed a 150-question multiple-choice test once in their lifetime.
“How do how prices go down if owners have skin in the game?
They don’t. They might stagnate, but no one is giving away their home if they have equity.”
exactly right, prices ‘stagnate’ and inflation goes to a more normal 3% (while loan rates go back to normal 7%).
eventually.
But in the scenario FreedomCM describes above, don’t the current owners get the benefit of inflation on their hard asset? So the homeowner wins either way, and renters are hurt either way. But regardless, prices don’t go down.
In the above scenario, nominal prices stagnate. Real (inflation-adjusted) prices go down.
But who knows? Perhaps the Fed won’t let it happen…and the US will become more like Europe, where few are able to own their housing.