Robert Shiller, Yale University professor, provides and outlook on housing and discusses whether there’s a bubble forming in the farmland. Video and computer generated transcript is embedded below:
the head winds to real estate may be turning. is real estate godfather robert shiller as enthusiastic as investors? joining us now on the squawk newsline, bob shiller, professor of economics at yale university, cofunder of the case shiller index. i understand you haven’t had your road plowed yet. that’s why we can’t see you in person. i was just shoveling ten minutes ago. really? so listen, a lot of people say real estate has turned, it’s one of the reasons why the market is moving higher. do you agree? well, it’s turned several times since the boom. ended. it’s just like we have a strong seasonal. it’s hard to, you know, seasonality has gotten much stronger. kind of hard to judge. i think there are positive signs, definitely. but, i’m not confident at all that it will keep going up. why? well, it depends on so many factors. you know, basically what i’m saying is speculative markets are risky. that’s not boilerplate. that’s a fact of life. it depends on so many things. like, for example, what happens to talking about a longer-run forecast, not next month. what happens to fannie and freddie. what happens to the mortgage deduction? what happens to europe? what happens to asia? what happens to our attitudes toward housing? and what kind of housing we want. maybe we’re becoming a more urban society. maybe we don’t care so much about mcmansions. all these things are in the mix. you know, after a major financial crisis we’ve often had a decade of weak performance in the economy. so we may be halfway through our weak period. you think right now that there’s actually a bubble in one area of real estate, two major bubbles, right? farmland. yeah, farmland. why don’t people talk about that? i wrote a column a couple years ago about it. and so far i wish i — i don’t think my own investment advice. i didn’t go out and buy a farm. i should have. i write a column and i don’t do it. but it certainly, you know, last year, especially in the midwest, middle of the country, farm prices just last year are up over 20%. amazing. but you’re saying there’s no fundamental reason for that — oh, there is. or it’s going to go bust at some point — you know, you never know whether it’s really a bubble. it doesn’t have all the hall marks of a bubble. one of them is most people have never heard of it. in my view of a bubble it’s something that gets people excited. well, some people are excited. but most people don’t even know about it. so when there is an etf f farmland then we’re going to know that we’ve arrived, right? yeah, i would like to start one. l has got a question for you. good morning, bob. hi, paul. when we think in terms of bubbles we’re always looking for some type of anchor or valuation for the property market in residential is always, you know, ratios relative to rent. right. a roof over your head you either have to rent it or you have to buy it. and with farmland you’re thinking in terms of year more short in food and you have to have food. how do you look at the valuation of the two markets? the residential now relative to rent, and the farmland relative to form commodity prices? well, i looked at a study — usda has some studies but it’s not very up to date on price for farmland. and it didn’t show that dramatic evidence of a bubble as of a couple of years ago, anyway, were increasing. and i think that is a sign it might not be — it might be an overreaction. it’s hard to say. it’s always hard to say. i’m not the world’s expert on farmland. there are things driving rents up, notably biofuels are becoming more important. and not just biofuels but plastics and other things, soybean and corn so more things are competing. there’s a world food shortage that’s been remarked about in the newspapers. all these things are fundamental, that might well drive farmland up. seems to me very likely the could overreact to that but i can’t prove that. how important do you think bank underwriting standards are? is credit too easy for this farmland? i doubt it. i doubt it the way banks are lending. not everything is driven by credit. you know, in fact that’s one reason to doubt that the farmland epidemic will really be huge bubble okay. because banks are more cautious now. bottom line, what do you think of home prices in real terms? what’s going to happen them in the near-term, medium term? well, you know, the futures market, the cme futures market has an increasing 1% to 2% in real terms. for the next five years. i think that’s a plausible scenario. i think you’d do better to invest in farmland, stocks, lots of alternatives to that. that could happen. but i think it could sag by 1% or 2% a year, too. if you were forced to bet between those two choices what would you pick? i see in the notes, i think home prices will continue to go down in real terms. i’m not a betting man. i don’t see these things. i mean, it’s sort of flat. you know it’s not going to be an exciting market. excitement will be somewhere else. good to talk to you mr. shiller. all right. my pleasure. see you later.