Robert Shiller: Housing Market ‘Looking A Little Bit Weaker’

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Nobel Prize winning Yale economist Robert Shiller invented the Case-Shiller Home Price index. He explains why homebuyers do not seem as excited these days despite the fact that the housing market has been strong since 2012.

Nobel Prize winner Robert Shiller: Housing market ‘looking a little bit weaker’

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Transcript

The boom has lasted since 2012 but it doesn't feel so much like a boom because it's the recovery from the worst recession since the Great Depression. And I don't see the euphoria. That we've seen in previous booms. I've been doing questionnaires surveys of home buyers. We asked them what do you think the price increase in homes will be per year for the next 10 years. And that's been pretty low since around 2040. I mean like 4 percent it doesn't have the spread that it did back in 2004. People were expecting 12 percent a year home price increases for and of our survey but the mortgage rate was 6 percent or so. But that's still a 6 percent spread between your you know your lawn and your shirt. We don't have that now. We have something like a 4 percent increase expected per year. It's not exciting and I don't think people are so excited.

Having a lower unemployment rate is a strong forecaster for home prices. If people are worried about losing their job they're not enthusiastic about buying a house. So one thing that's been driving the housing market is the much advertised fact that recently we were down to three point seven percent unemployment rate. Which was the lowest since 1968 and that was also back then that was also a low extreme low point doesn't get it doesn't get much better than that. So that then gives people a sense that America is becoming great again. At least. Something like that which encourages people to buy. But there are also other things that are more emotional that are driving. I just think the Trump lifestyle. Is Not Only Trump it's the people who surround him. There is more of a sense that it's OK to flaunt your wealth. I mean it flaunt your wealth as a judge mental term. It's OK to to show that you've made it in society. That's the so-called American dream the American dream has been a growing influence that hey you know that's what we're proud of we're proud of each other for all having such beautiful homes. That mood has been strong under a Make America Great young president. Make America Great Again means we'll all be living in mansions or something like that. I think if you go back 50 years and ask about homes as an investment you would get a strong No. They would say that's too much trouble. It's hard to make a profit. Buying a house to rent it are hard to make. That means some people did it. Now I think we're well especially in the years before the 2007 financial crisis. A lot of people were doing that they were flipping houses that they said.

Well the enormous housing boom that preceded the 2007 financial crisis after 2007 was unusually nationwide.

Usually the narratives about housing and their booms were local of one sort or another. For example when the Florida housing boom in the 1920s was attributed to the fact that we now have cars we can drive down to Florida. Everyone's coming. There was a simple story. Now it's breaking down a little bit. Is still a national component but some of the best stories are places that seem to have a life of their own notably Seattle Seattle was the dream city I guess for home price appreciation a year or two ago. But now it's retreating. Trump signed the bill that put on an increase in the standard deduction which made it less profitable to itemize your mortgage when you buy a house. So it changes my enthusiasm for owning a house. Also when people don't get their tax refund in the same proportion that they used to maybe realize that things aren't as good.

I don't know how to forecast the housing market but I think that it's looking a little bit weaker now and there could be a change of sentiment toward housing that would bring prices down.

The problem of affordability of housing is not unique to the United States. I hear this in London for example or Shanghai. How does anyone afford to live there. And it's it's part of the polarization that's occurring around the world between populists. And. Elitists. So in Britain they're not so happy that they can't afford to live in London anymore and they have all these foreigners coming in with their. Huge wallets and bidding up prices. So this led to Brexit. And it could lead to economic instability in many places. It's a big theme of our time. I don't know what we can do about it. It's unfortunate.

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