Calls that the housing market has bottomed out are misleading because such statements suggest the sector is poised for a rebound, which isn't going to happen for a long time, says Yale economist Robert J. Shiller.
Prices are slowing their descent and building permits are on the increase, but that's where the good news ends.
"When people phrase it that way, they say 'We've reached the bottom.' That suggests that we have the expectation of a major turning point right now. But I don't see that. I don't see any reason to think that prices are going to start heading up dramatically now," Shiller tells Business Insider.
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"We do have some good news," Shiller says. "Permits are up. Notably, the National Association of Homebuilders Housing Market Index is up and that's a forward-looking index. But it's not up very much. If you look at the rate of change it looks dramatic but it's still at a low level."
Shiller accurately called the equities bubble of the late 1990s and the housing bubble of the 2000s and is a developer of the Standard & Poor's Case–Shiller Home Price Index.
The problem with timing when housing will recover is this bubble is behaving unlike most other asset bubbles that popped in the past.
Historically, then a bubble bursts, prices shoot below fair value in the market only to rebound back to normal levels once all the excess drains from the system.
Housing hasn't behaved like most other bubbles, such as the stock-market burst of 2000, due to the many factors pushing and pulling at recovery: construction costs, the prices of land and benchmark interest rates all follow varying weather vanes.
"The problem is we've never had, in the United States, a bubble like this, of this magnitude before. That's the problem. That's the fundamental problem of economics," Shiller says.
"We'd like to be statisticians but in fact the world is always changing on us. So we end up having to use judgment. We're not very good at that."
Housing starts fell 4.1 percent in December, according to Commerce Department data, although many analysts say the overall trend is improving, even if slightly.
"We would read nothing into this December drop in housing starts since it was entirely the result of a drop in multi-family housing starts in the Northeast," RDQ Economics analysts write, according to the AFP newswire.
"Single-family housing starts across the country rose 4.4 percent, which was the third consecutive monthly increase and probably a better measure of underlying trends in housing activity."
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