Yale's Shiller: It’s Still Too Early to Call Recovery in Housing

Friday, 12 Oct 2012 12:35 PM

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Home prices might be rising, but it’s still too early to state that the housing market is in full recovery mode, said Yale economist Robert Shiller.

Federal Reserve policies that aim to push already low interest rates even lower won’t necessarily fuel more demand for housing, added Shiller, architect of the Standard & Poor’s/Case-Shiller home price index.

Housing by its nature takes a while to bottom out, recover and then gain momentum.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Seasonal factors can bump up home price and sales data as well, plus gains in parts of the United States might not reflect the broader national trend.

“We have rallies in Phoenix and San Francisco. The question is, is this really nationwide? In the last few months it looks like it, but are we going back to the early 2000s where the correlation across markets got really strong? I don’t know yet. It’s just too soon to tell,” Shiller told CNBC.

In a previous housing cycle, home prices peaked in 1990 and started falling slightly, though it took a decade for the market to take off again, Shiller said, adding the current decline, much more severe, is only six years old.

“It might still be going down. There are a lot of world economic problems that are staring at us right now.”

To stimulate the economy, the Fed recently announced plans to buy $40 billion in mortgage-backed securities held by banks every month until the economy and labor market improve, a monetary policy tool known as quantitative easing.

Quantitative easing works by pumping the financial system with liquidity in a way that pushes down interest rates to encourage investing and hiring, though borrowing costs are already low, including mortgages.

“The government wants you to buy, so we’ve got mortgage rates at record lows,” he said.

“It’s like money for nothing right now.”

Inexpensive financing and still-low home prices might convince would-be homebuyers to be patient and wait.

“As for advice to homebuyers right now is, is this urgent? Should you buy right away because interest rates might go up or home prices might go up? I just don’t see the urgency,” Shiller said.

“Take your time.”

U.S. home prices jumped 4.6 percent on year in August, the largest annualized increase in more than six years, according to CoreLogic, a private real estate data provider, which added that prices rose 0.3 percent in August from July, the sixth straight monthly gain.

“The housing market’s gains are increasingly geographically diverse with only six states continuing to show declining prices,” said Mark Fleming, chief economist for CoreLogic.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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