Robert Shiller, the noted housing economist, is one of the industry’s most influential authorities, and he’s been notably skeptical of the housing recovery.
News regarding the housing market has been uniformly positive the last couple of weeks. New home sales in January hit their highest level since 2008. Negative equity is improving. Contract activity has been strong, and the mortgage markets continue to show signs of healing.
Yet, despite all this good news, a powerful authority on the housing market – Robert Shiller, the economist whose name makes up half of the hugely influential Case-Shiller Home Price Indices – is not yet ready to jump on the housing recovery bandwagon.
Robert Shiller – Guru in Doubt?
In a recent interview with the Wall Street Journal, Shiller fleshed out several of his ideas on the housing market, balancing any compliments about the industry with a healthy dosage of skepticism:
- Though commenting that the current trend in home prices “may well be the turning point,” Shiller still fears that the recent home price increases – which saw values jump by more than 7 percent in his own index in 2012 – could be a fad.
- “It could be like the 2009-10 upturn where we saw home prices rising right after President Obama took office and right after the home-buyer tax credit was instituted,” Shiller said. “In that upturn there were some cities that did quite spectacularly. And then that fizzled. I’m not too sure that this one will extrapolate either.”
- And the reasoning behind Shiller’s skepticism is logical. The foreclosure boom, he explained, has receded in recent months, and with less foreclosure sales on the market, there has been less downward pressure on home prices – thus, an illusionary increase in home prices could be in the works.
- “People might be deceived by this by looking at the indexes,” he said. “The question is whether the gains will be sustained.”
Is the Housing Recovery Sustainable?
Iliana Abella, a Realtor with Greater Miami Investments and Master Brokers Forum member, said that among properties priced in the mid-range region, the market is a definite seller’s market. For example, Abella said that on Feb. 24, she listed two properties in Coral Gables; by Monday morning, the property with the lower price ($740,000) had already received nine showing requests.
“When people say we’re in a seller’s market, I think that’s true,” she said.
But what are your thoughts? Is Shiller right to be skeptical, or are there too many good signs in housing right now to see anything but a recovery?
We have been in a real estate recession from 2006 through 2010 which saw prices erode 50%, and in some cases 75% from their highs. We have had two up years in which some areas saw 20% increases…do the math 20% of 50% = 10%. So we’re still down over 40% (and 60% in some markets). There’s plenty of room for prices to continue to increase and they will. Only the ultra high end is anywhere near overextended. Supply & demand are way out of balance. There is 5+ years of pent up demand and virtually no high quality supply. The basic laws of economics tell us that high demand in the absence of supply causes prices to rise. This will eventuially bring more supply onto the market and reduce demand… but not any time soon. Of all people, Mr. Shiller should know this. He’s an economist.