Robert Shiller: Real Risk of Weakening Housing Market [VIDEO]

Robert Shiller, Case-Shiller Index co-founder, breaks down the latest numbers on housing, with the “Squawk on the Street” crew.

Robert Shiller video and transcript below

Transcript:

want to get back to the key housing data this morning and case-shiller s are showing that the home prices are continuing to climb. the 10 and 20 city compose sits rising 10 and 20% for june, and here is on cnbc, robert shiller, professor of economics at yale university. robert, it is great to have you back, good morning. my pleasure. and we have the twin city up double-digits for the fourth straight month. what do you make of that? well, obviously, we are in a housing recovery, at least for the short term. i have always been less sanguine about this one, but housing is a market with momentum, and right w the momentum is up. well, professor schiller, it looks like there are some, and i know in june, peaking in the rates, but i mean the spike in rates, but you do say that of only six cities where the prices were rising faster than a month last, and so is that some diminution of the game? well, there are some, yeah, there are some weakening signs and the starts are down, and especially in the single-family realm. i think that there is a chance that there is weakening, and there is a all of the fear about the ting that is a cloud over the housing market right now. you seem reluctantly positive, and you have seen it for a long time. i mean, you almost feel like you want to say, ah, it is not for real. well, none of this is for real. the housing market has gotten very speculative and it goes through the big cycles, and take california for example. it is and up and down and up and down and decade by decade and it does not go anywhere, but a roller coaster, and that is the way that the markets have become. so for a long term buyer the fact that they are going up now does not mean a lot about where it is going to be when you finally sell. and we have seen big disappointments and you have mentioned the starts a and the new home sales also disappointing and the soften ing in the terms of the purchase mortgage applications, do you see those trends continuing through the back half of the year? i think that there is a risk of a weakening housing market. it is a speculative market, and this has been not by research, but ven by irrational exuberance and that can suddenly change. it is a story, and evolving story, and nobody who can really predict this for sure. it is risky. well, robert, we have seen a tremendous number of hedge funds, and private equity guys going to buy a lot of homes and fix them up and rent them. i have a feel that is the height of speculation. is there a possibility that the homes will not be able to be staying in the hands of the private equity and they will dump them and that is going to cause the decline? well, the — right. the momentum that we have seen historically may be weakening, because there’s so many more professionals in the market. it is kind of obvious to me what these hedge fund people are thinking. they are thinking it is a market with reel momentum, and it is going up, and i can flip something and buy it and sell ate year later,ed a it is pretty safe and i think they might right, but that means that the market going to change. isn’t this the housing market we have got. when is tlas time there was a normal housing market then, robert? oh — 1960s. hard to tell. days of the bewitched great. and robert, we keep hearing the pent up demand and every homeowner trying to outdo each other and even though the rates went up, and are they being realistic and is the pent-up demand able to carry us into a better starting number in 2014. well, pent-up demand is important concept and after years of dearth in housing, you would expect pent-up demand. but on the other hand, other things are working. there is an increased desire to rent, and less of an interest in the disbursed suburbs and more of a desire to stay close to the public transportation, and activity, and these things are downers and long-term downers for a good part of the real estate market. another big piece is how the first time buyers making up a smaller part of the market, robert, and you could argue that the housing market is catering to those with money and not those who are looking to graduate from renting. that is a troublesome thing, yes. ideally, we would like investors, and that is the american dream to own a home and be part of a community for a long time. it is stability and connectiveness. this idea of a lot of speculators in the market is not healthy. right. and robert, thank you so much for your time and interesting numbers worth seeing and people in houston want to know why they are on the 20-city, but that is a new discussion. well, we will get to that. and a lot of new apartment