Robert Shiller on the Grim Outlook for Housing Prices

As you may have noticed, there was a lot of interesting non-housing stuff today, so I am a bit late to this very good post, from Barry Ritholtz at The Big Picture:

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)

The post also includes some interesting charts.

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