Shiller on Housing

Wednesday, April 04, 2007 | 04:15 PM

Today seems to be all about Real Estate.

For those of you that follow this space, you definitely want to go read the latest work via Yale professor Robert J. Shiller on "Long-Term Perspectives on the Current Boom in Home Prices" in The Economists' Voice. Shiller wrote Irrational Exuberance warning of a peak in equity prices, it was published coincidentally with the peak in the market in 2000.

  Shiller admonishes:

"The news is not good for homeowners. According to our data, homeowners face substantial risk of much lower prices that could stay low for a long time after. Luckily, though, derivatives products, notably a futures market, are being developed that they will soon be able to use to insure against this risk." 

The good doctor doesn't mince many words in the following pages. His warnings are stark:

• The data show no long-term up trend in Real Home prices

• The only other time the United States has  experienced a large home price boom was around the end of World War II.

• Hedging instruments are soon to be available to Home owners to protect against severe downturns in Housing values (minor sales pitch)

Some of Shiller's charts:

Real Home Prices versus Rent


It is striking that, while there does not seem to be a genuine long-term uptrend in real house prices, there does seem to be a genuine long-term downtrend in real rents. And yet, Shiller notes, In practice, however, the situation is very different: Not only do real home and rent prices fail to track each other, but the rent-price ratio has shown a remarkable downtrend  since 1913.

Residential Investment as a Share of GDPResidential_inv_v_home_prices


US versus Norway versus Amsterdam prices


Very thought provoking stuff; The entire piece (don't worry, its short) is worth a read.


Long-Term Perspectives on the Current Boom in Home Prices
Robert J. Shiller
The Economists' Voice, Vol. 3 (April 2006)

Wednesday, April 04, 2007 | 04:15 PM | Permalink | Comments (30) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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All about real estate...I'll say.

From a casual look at the first chart, I see a market that had pent up growth/demand (went nowhere for 50 years), that should now correct back toward 2. This might be right back to a smoothed straight line on a logarithmic scale.
Secondly, the "spike" move in the 40's (somewhat comparable % move) did NOT end in a collapse.

Posted by: Fred | Apr 4, 2007 4:51:51 PM

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