Yale's Nobel Winner Shiller Sees 'Pitfalls Ahead' for Housing Industry

Tuesday, 25 Feb 2014 01:06 PM

By Dan Weil

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While the housing market is starting to hit some bumps, prices will likely rise again this year, says Nobel laureate economist Robert Shiller of Yale University.

The S&P/Case-Shiller 20-city index of home prices (partly named after him) slipped 0.1 percent in December from November but soared 13.4 percent for 2013 as a whole.

"There are pitfalls ahead," Shiller told CNBC. "I think, though, that at this point they [home prices] are going up pretty fast. My instinct is that this momentum will dissipate, but we won't see a reversal this year. I think it will still be up."

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Home prices will likely rise early in the year "at a fairly good pace," Shiller said. "But I think they may weaken. There are a lot of signs showing that the housing market is weakening."

The home market now resembles the boom period of early 2006, Shiller says. "Nobody was paying attention as much, but everything started to turn down," he said.

"Now, that was the beginning of a disaster in the housing market. So I don't think it's anything like that [now], but it is worrisome. This is a time you might be a little careful in the housing market."

To be sure, home prices remain far below their 2006 peaks. "Homes are not expensive now, and that's the silver lining in this," Shiller said.

"If I were buying a home right now, I would think, if I want it, fine, because it's not expensive. And mortgage rates are still low by historical standards. It's not a horrible time to buy a house, not at all."

Asked if the housing cool-down represents a triumph for recently-departed Federal Reserve Chairman Ben Bernanke, Shiller said, "I don't think Bernanke is really in control of the housing market. These people probably don't even fully understand it. So, I think the market has a life of its own."

But the Fed did play a role in the housing market's 2012-13 rally by pushing mortgage rates to record lows in 2012, Shiller says. "We saw a burst in housing enthusiasm [in response]. And that carried over for a while, but it might be fading now. . . . Interest rates have gone up by about a percentage point since 2012."

Other experts agree with Shiller that home prices will continue to rise but at a slower rate than early last year.

"The market should continue its slow march back to normal, as annual [price] appreciation rates fall to more sustainable levels around 3 percent," Stan Humphries, chief economist at real estate data provider Zillow, told Associated Press.

But other housing experts urge caution.

"The S&P/Case-Shiller Home Price Index ended its best year since 2005," David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a statement.

"However, gains are slowing from month-to-month and the strongest part of the recovery in home values may be over," he said.

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