Robert Shiller: Housing Wealth Effect Stronger Than Stock Market

Robert Shiller: Housing Wealth Effect Stronger Than Stock Market
Robert Shiller speaks at Buttonwood conference in New York May 30th 2013 (C) Elliot Turner, ValueWalk

January 28th 2014 – Robert Shiller, Yale University professor of economics and Case-Shiller Index co-founder, breaks down the latest S&P Case-Shiller housing data and explains what lies ahead for the housing market.

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Robert Shiller video and computer transcript below.

home prices overall we’ve seen substantial gains in home prices across the united states. is that going to be set tocontinue into this year? i think it will continue. but likely attenuated. if you look at the cme futures market they’re predicting only a little over 20% increase out to 2018. i think that’s a reasonable forecast. it also corresponds to theforecast i got from a survey of home buyers who said, that waslast may, and it said that they were expecting 4% a year for thenext 10 years. so, those are reasonable forecasts i think right now. so, let’s talk about the knock-on effects. we’ve seen household equity home prices go up. how much is that going to do to consumer spending, to consumer confidence, and the overall economy? well, you know, in our research on the wealth effect from housing, we find that the housing wealth effect is even stronger than the stock market wealth effect.that’s because it’s dispersed among so many people, a largepopulation of the people own a house. it should have a positive impact on the economy. what about the federal reserve that the fed is set to taper or scale back the massive stimulus? will that have an impact on the recovering housing market thatwe’ve seen and specifically on the gain in home prices? yeah.i think it substantially already had its impact. when they first announced qe-3 we saw a jump in interest rates. mortgage rates have gone up a lot since a year ago. and that’s another reason to think that there will likely be a slowing in home priceincreases in the coming year. but i still think they’ll be up in the coming year. what about the stock market? i know you’ve done a lot of work on this idea of bubbles and what the stock market has been doing. how does it look to you in terms of valuations right now? we’re not too far off from record highs. well, i have a ratio called the k-ratio which is real price divided by ten-year average real earnings and that has been quite high, but not anything like a record high. so, overpricing of the market would be priced relative to earnings. but earnings have gone up a, the market is high, but not record high.

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