Yale's Shiller Still Glum on the Economy, Housing

Robert Shiller was among the very few to warn of a housing bust before it happened. Now he says that although the housing market could be approaching a bottom, prices might remain in the “doldrums” for years to come as the US remains in a “liquidity trap” comparable to the one it faced during the Great Depression. Click here for the interview.

Though stock market prices are valued fairly, Shiller said, equities remained a “risky” investment because the US had not turned the corner on its fiscal crisis. He warned that stock prices “could fall dramatically”.

Click here for the article.

Source: MoneyNews, July 20, 2009.

Comments

[Dave Wrixon:]

With the level of foreclosures in the pipe there is little chance of a bottom unless a collapsing dollar attracts buyers of holiday homes from Europe and Asia.

Jul 22 05:29 AM

[Living4Divi...:]

Thank your for the article - good stuff as always

Jul 22 07:14 AM

[Old Rick:]

Some of the big markets, like coastal California, still have a ways to go on housing before the "regression to the mean" is completed. The issue then is how far do prices overshoot below the mean?? Gotta go with Schiller on this one.

Jul 24 02:51 PM

[bricki:]

Shiller is one of the few that seem to paint a realistic picture, neither excessively bullish or bearish.

Jul 24 03:49 PM

[WhoisJohnGalt:]

I have all respect for Prof. Shiller and his work, but it's funny how only a few weeks ago he was expressed a rather different outlook on housing markets:

www.bloomberg.com/apps...

It's concerning that these titans of academia overtly express an opinion that rides with the times, most notably Prof. Krugman.

Jul 24 04:56 PM

[Fighting Yoda:]

Everybody's opinion gets clouded by the headlines - and the breaking news everyday is S&P is going up.

However the economy continues to contract, job losses continue unabated, never mind the 2nd derivative.

On the housing front - there simply is too much inventory, lot more to come via foreclosures. And home ownership is still at 67% way above the historical average of 63%. And also mortgages are hard to come by - FICO and down payment are actually needed.
Home prices will continue to go down in most markets - especially the big and troubled areas.

Jul 24 05:38 PM

[Dian L. Chu:]

No economies can stage a meaningful recovery without the backing of a healthy financial and housing market. Though there are some positive indications on the residential housing, commercial real estate is the next front in the financial crisis after the collapse of the housing market. The financial sector right now is artificially "pumped" by bailouts and the need for serious reform and restructure remains.

Although S&P index earnings topped the average of analysts’ predictions, sales growth lagged behind profits as companies "shrink" to stay profitable through aggessive cost cutting measure. The divergence between earnings and revenues is another sign that the economy is still weak and not roaring back.

Jul 25 09:40 AM

[RTF 360:]

A turn in housing ? William C. Wheaton, Professor of Economics, MIT.....Schiller is obliged to rebutt Wheaton's arguement.


This column argues that fundamentals on the supply side of the housing market imply that US housing prices are about to bottom out. They should resume rising soon.

Is it possible we are at the bottom of the first dip in the "W" type recovery? An intriguing article was recently written by MIT's William Wheaton, who argues that net new household formation will soon create significant demand by using up existing inventory in the housing market. That demand may be sufficient to stabilize prices and stimulate new construction. It's a matter of demographics.

From VOX, William C. Wheaton:



During the last decade, net new household formation averaged approximately 1.4 million per year. Last year, the Census reported that the US added only 544,000 new households – during severe contractions the young stay at home, singles “double up”, and household formation (normally) slows. Even with declining demographics, however, most analysts foresee new household growth resuming to a level of at least 1 million by 2010 and beyond. If we conservatively add 200,000 demolitions per year, the US economy will “need” at least 1.25 million new units yearly in the near future. With today’s currently depressed construction, this generates a yearly deficit of 750,000 units.

At that rate, the current excess inventory of units for sale or rent will be back below normal by 2011. Prices historically have a strong relationship with sales “duration” – the ratio of inventory-to-sales. Hence under reasonable conditions, in two years we will have to increase construction considerably and prices will have to justify the cost of that construction.

Jul 25 11:01 AM

[Michael Clark:]

Are we going to discuss every commentator's ethnic background and religion? That should be fun. I think Hank Paulson is a WASP, but he might be a Jehovah's Witness. Is Roubini a Catholic Italian?

Did the Zionists really cause the global collapse? I thought they were on the side of global liberalism and universal government, against aryan regionalism....

I'm really consfused now.

Jul 25 11:15 AM

[Michael Clark:]

I agree that the writer seems to, quite often, merely read stories on Bloomberg or some other site, and report on that article. I read the article on Schiller on Bloomberg. I can understand using an existing artcle to make your own point, but simply reporting what has already been reported makes me wonder....what's the point? I guess the point is to become one of the leading bloggers on this site. Ok.

Jul 25 11:22 AM

[LKofEnglish:]

schiller always reverts to form: no housing market no economic growth. he's been sawing that trade since day one and it has been but for one monumental real estate collapse (a time actually when he became quite bullish as the anti-semite above so vocifersously and i would agree truthfully pointed out) a total loser. consumers have more cash BECAUSE of collapsing real estate not in spite of it. lord knows the government is INCAPABLE of raising revenues because of this particular implosion. don't let schiller and his ilk fool you, though. buffet became the world's richest man by IGNORING the schillers of this world. r we surprised buffet is right again while professor schiller reverts to form? too many people assume laziness as a response to a recession. that is what governments do and academics excoriate us all for being--but its not the american people. they're hard at work creating the next boom and BUT for the government policies of the past six months we'd probably be out of this recession already.

Jul 26 02:43 AM

[Michael Clark:]

You're a bit optimistic, I think -- at least when compared to the world I'm seeing. Boom and bust go together. Take a look at history. Busts never last two years. If a Boom lasts 18 years, as this one did (1983-2001), then we have a lot more downside and suffering before we arrive at the next boom.

Americans are hard-working people. But the last boom was fueled on expanded debt -- and the critical weakening of the dollar. We still have to go through a period of strengthening of the dollar -- i.e., higher interest rates, lower property values, and massive reduction of debt -- before another boom will appear.

Watch out for the housing head-fakes. Housing values have to come back down to salaries. This will happen at about 2019.


On Jul 26 02:43 AM LKofEnglish wrote:

> schiller always reverts to form: no housing market no economic growth.
> he's been sawing that trade since day one and it has been but for
> one monumental real estate collapse (a time actually when he became
> quite bullish as the anti-semite above so vocifersously and i would
> agree truthfully pointed out) a total loser. consumers have more
> cash BECAUSE of collapsing real estate not in spite of it. lord
> knows the government is INCAPABLE of raising revenues because of
> this particular implosion. don't let schiller and his ilk fool you,
> though. buffet became the world's richest man by IGNORING the schillers
> of this world. r we surprised buffet is right again while professor
> schiller reverts to form? too many people assume laziness as a response
> to a recession. that is what governments do and academics excoriate
> us all for being--but its not the american people. they're hard
> at work creating the next boom and BUT for the government policies
> of the past six months we'd probably be out of this recession already.

Jul 26 05:53 AM

[Michael Clark:]

I forgot to comment on this line. This is a typical Republican view-point. If not for the governmental policies of the 'free-market' global economy crowd of the previous 18 years we would not have had a crash at all probably, and also probably not the series of bubbles that put the entire world at its highest point of debt-content in the history of the world.

It is a fantasy that more debt will cure our debt problem. Obama did not create the debt bubble. (It's true Obama is adding to the debt problem, encouraged to do so (extortion anyone?) by powerful bankers and friends of bankers.) Good God-fearing patriotic American Republicans created the debt bubble. They created a series of bubbles for their own profit, while the majority of working people are now looking at bankruptcy or worse, having fallen for the 'dream' of a never-ending BOOM.

Everything that expands also collapses. It's a basic law of physics.

It is also an illusiton that government policies turned the Great Recession of 1929 into a Depression. A recession is like a head cold. And a depression is like kidney cancer. A recession occurs when supply gets ahead of demand and the economy is unanble to digest the supply; consumption slows so that demand can again catch up. Recessions are short-term phenomenon. Depressions mark the end of a long-term expansion of debt. When everyone on the planet is at maximum indebtedness, then the bubble pops and the debt needs to be unwound. You need to work your way back to ground zero -- or not-work your way back.

The government (including the Fed) is DESPERATE to blow another bubble. That's what the free money to banks was all about, so that they could try to blow another stock bubble. It seems to be working -- although Goldman Sachs is doing most of the trading. But if you make a deal with the Devil -- what do you think the story of Faust is about: it is about taking out a loan hoping you won't have to pay it back. The devil shows up eventually and wakes you up from the dream. Then, all fo the sudden, you are looking at reality, minus the fantasy bubble inside of which you were living for so long.

I remember a Janice Ian song she wrote when she was 15: "As reality draws near to me I run screaming...!"

Well, Reality is drawing nearer and nearer. The stock market rally is a Bear Market Rally. Between 1929 and 1932, there was 6 “bear market rallies” that ranged from 12 to 110 percent.

Take a look at the chart below and tell yourself that it is Obama who is ruining the economy. As always, in American history, it is the banks and bankers' greed that causes our economic depressions -- and we've had a lot of them over the past 230 years.

www.businessinsider.co...

"BUT for the government policies
> of the past six months we'd probably be out of this recession already."

Jul 26 06:19 AM

[Wisdom vs. ...:]

remember that Shiller is a cloistered academic. do not get excited because he agrees with you. shiller blames the current recession on lack of oversight instead of artificial government stimulation (and AIG underpricing mortgage insurance), and thinks the only thing that can fix it is more stimulation-- apparently Shiller is ignoring Japan and Europe, convenient to forget history when it disagrees with you. i realize that it is cool for academic "economists" to ignore history because "we have figured out what went wrong there", so call me a dork: the demand siders are ALWAYS wrong

Jul 26 11:47 AM

[Steve in TN:]

First of all, economist Dr. Robert Shiller is NOT Jewish. This brings up to question all the "facts" that you state in your anti-semitic rant.




On Jul 25 07:11 AM Mike Stathis wrote:

> Mr. du Plessis, with all due respect...........rather than echo the
> lies of the financial media (i.e. that Shiller "predicted" a real
> estate bust) you might want to start checking track records thoroughly.
>
>
> Crying wolf for several years (ie. Shiller, Schiff, Shilling, Krugman,
> Roubini - all JEWS btw...hmmm coincidence?) does no one any good.
>
>
> If you are not at least reasonably timely in your predictions, you
> are useless as far as investments are concerned.
>
> Shiller is a data collector. Amyone who sees him as more (other than
> his quality contributions to behavioral finance) are merely proving
> they are sheep; followers trying to ride piggyback off of a manstream
> media hack/idiot.
>
> Surely you can do better for yourself.
>
> I suggest you research the track records of real experts. Did Shiller
> predict a 35% decline in housing prices in 2006? What about in 2007?
>
>
> As the facts show, Shiller only predicted a 30% decline in housing
> in the summer of 2008 AFTER housing prices were already down by over
> 22%. That's more like BROADCASTING rather than FORECASTING as far
> as I'm concerned.
>
> Perhaps you might do better to stop focusing on the Zionist-go-to
> guys (Shiller, Shilling, Schiff, Roubini, Schiff) who are promoted
> by America's Zionist-controlled media, and have a look at my track
> record, which is UNMATCHED in the world. ofcourse, I am not Jewish
> so I have no media exposure.
>
> You cannot dispute written accounts. Only by failing to address those
> that provided the most accurate and timely forecasts are you showing
> the world what little you know.

Jul 26 02:00 PM

[Wisdom vs. ...:]

demand side overstimulation is not a republican activity. ridiculous comment. cap ex has been flat the last ten years b/c state and federal taxes and regulations (esp California) have strangled small business, thus job, creation. republicans prefer supply side freedom, and there has not been any, so you have simply shown you are completely ignorant of economics and politics; and, that is why you are one of Shiller's sheople. look at europe and japan, they are running their economies as shiller wishes and it does not work. quit being ignorant

Jul 26 02:11 PM

[Michael Clark:]

Einstein sat on a college campus 8 months out of the year and he told us quite a bit about reality.

Don't forget, the intellectuals didn't destroy the global economy. The 'realists' did.


On Jul 25 07:28 AM Mike Stathis wrote:


>
> Shiller is like Bernanke and Krugman--- these guys have no concept
> of reality. They sit in a university campus for 8 months out of the
> year rekindling their adulthood without having a clue about the real
> world. They are truly clueless.
>

Jul 27 01:38 AM