Economist Robert Shiller: Bubble Brewing in Housing Market

Tuesday, 31 Dec 2013 12:37 PM

By Dan Weil

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Nobel laureate economist Robert Shiller, who correctly forecast the stock bubble of the late 1990s and the housing bubble of the mid-2000s, sees another housing bubble forming now.

The S&P/Case-Shiller index of home prices for 20 cities (co-named after him) soared 13.6 percent in the 12 months through October, the biggest gain in seven years.

"The housing market has its own momentum right now, as people see it coming back," the Yale University professor told CNBC. "We're sort of in the beginnings of another housing bubble."

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The index shows signs of slowing down. It gained 0.2 percent in October from September, decelerating from a 0.7 percent increase in September.

David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement that this slowdown "show[s] we are living on borrowed time and the boom is fading," CNBC reports.

The futures market also shows home price ascents "fading a bit," Shiller said. "But it's predicting the increase won't stop until after 2018. I think we still have time to go, but it might be weaker."

Others agree with Shiller that the upward price trend will continue.

"There’s certainly room for home prices to continue rising in the coming year," Dana Saporta, an economist at Credit Suisse, told Bloomberg.

"As home prices continue to rise, more and more homeowners who are underwater on their mortgages will see their financial situations improving. Just getting out of that underwater position should be a big help to the economy."

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