Economists sure didn’t call the housing bubble as it inflated – and now as the air is let out, no one seems to know what’s next. What goes bubble must go burst, right? Not so fast says Yale economist Robert Shiller. He was on “Street Signs” to discuss an op-ed piece he wrote in today’s Wall Street Journal about the housing boom.
Shiller – one of the few experts who actually predicted the housing bubble – says the future of the market is unclear. He likens it to the dot-com bubble, but he isn’t so quick to say it’s going to end the same way, with a burst. A slow exhale might be more like it.
Because the housing market was subject of the biggest bubble of all time, Shiller says, it’s difficult to gauge how it will shake out. Housing prices popped fast but there isn’t necessarily an indication that the exuberance will burst with the same speed it took to create. Instead, it is “substantially probable” that prices will slowly fall over the next few years, according to Shiller.
Another reason for the uncertainty of the situation, says Shiller, is that people are slow to adjust their housing decisions. The housing data hardly paints a clear picture either. In today’s Journal, Shiller writes that short-term indicators have economists thinking the housing market is about to correct upward. For example, existing home sales showed an increase last October and November – but then fell again in December. And a U.S. Census report shows an increase in the new home sales since last fall – but that pop could be attributed more to unseasonably warm temperatures than any longer-term market trend.
Shiller points to London and Sydney as cities that have seen a precipitous housing drop off just a couple years ago, and now the markets seem to be moving back upward. Shiller says the thing to remember is that a bubble can last a lot longer than people think – and he isn’t ready to call the next play in this one quite yet.