Shiller: More than Stimulus Driving Home Prices Higher

Robert Shiller, economics professor at Yale University and co-creator of the S&P/Shiller home-price index, talks with Bloomberg’s Carol Massar about the U.S. housing market. The S&P/Case-Shiller home-price index climbed 1% from the prior month, seasonally adjusted, after a 1.2% increase in July, the group said. From a year earlier, the gauge fell 11.3%, less than forecast. (The S&P/Case-Shiller Home Price Indices can be accessed here.)

Click here or on the image below to view the interview. (There is no longer embedding available for the Bloomberg videos on YouTube.)

Source: Bloomberg (via YouTube), October 27, 2009.

Comments

[ryanclarke:]

Sure, more than stimulus is driving real estate prices higher ... like the real estate industry is going to allow their commissioned sales slaves ... I mean ... realtors ... to make anything less than $100,000 a year? Come on. We all know what's good for Century 21 and Remax and Coldwell Banker is what is good for America ! Too bad they can't inflate housing costs to $1,000,000 a square foot without driving energy costs to a $1,000,000,000,000,000... per BTU.

Oct 29 04:13 PM

[58robbo:]

i'd have to inspect that data in greater detail before concluding that like for like homes went up in value. could it not be that the recession affected different income groups at different times and that might've skewed the figures somewhat? be that as it may, there has been a lot of talk about the tax credit driving this market. while i don't disagree with that, i believe that the biggest driver has been the banks distorting the market by witholding supply!

i don't really have a problem with the banks doing this with their own money. what i do object to is the banks holding on with taxpayer money whilst hundreds of thousands if not millions of people are being forced onto the street

the thing which perplexes me most though is the double std. one set of insolvency rules for the common man. rules which force us to liquidate regardless of time and price. then there are insolvancy rules for the big guns who have a direct credit line with the taxpayer for any amount. for this there can be no justification!

Oct 29 05:51 PM

[D. McHattie:]

Your subject line is right, it's more than just the stimulus driving home prices higher.

Our culture has still not shed this irrational belief in homes as 'investments'.

If you listen to Shiller closely he says, statistically, home prices should continue to fall. What is driving the market higher is 'animal spirits'. In other words 'irrational exuberance'.

Sure, home prices could keep rising.

But ultimately they will have to fall.

It's all in the stats of incomes and rents, which do NOT support this level of home prices. End... of... story.

Oct 29 11:22 PM

[clreed1252:]

Your title is a misnomer. I didn't here him say anything except that he was perplexed. He didn't even seem sure of his statements regarding "momentum" or "confidence". His statements certainly don't instill a lot of confidence in me.

Oct 30 01:40 AM

[Denis Gould:]

Rob Shiller is almost the only person who's credibility is so high that he can get away with saying "I don't know" on Bloomberg televsion. The presenter still tried to pick him up on it but that's what he said. The serious deliquency rate has continued to rise - to a record 3.33% according to Freddie Mac - and the pace of increase is accelerating too.

Oct 30 02:06 AM

[HunterGVL:]

Shiller is a rarity. An honest analyst and economist. When he says I don't know, it is so refreshing. He makes a large effort to not have his comments misconstrued because he has experience talking to sensation seeking talking heads that are interviewing him. What is driving housing prices up? Simple....sales.
The homeowner credit is increasing first time buyers' ability to afford housing they couldn't normally make a down payment on, which is driving more sales and the old supply and demand is driving prices up.....TEMPORARILY. It's just a mini-bubble version of the same crap that created the major housing bubble crash in the first place. The sad part will come about a year from now when all those first time home buyers who couldn't come up with a downpayment in the first place, start defaulting on THESE new loans. It will be a blip to the banks and mortgage companies already neck deep in foreclosures and off the balance sheet losses (which is why they don't have to put THOSE houses on the market any time soon), but for these NEW homeowners, just another group of wannabe homeowners being sold the american dream that will impoversh them with a mortgage they can't afford in an asset that continues to fall in value. These are the same consumers that were absolutely stunned by the great deals offered by the cash for clunkers debacle. The same story as always; The Twenty Percent preying on the 80%. Or has that become 90 and 10, 95 and 5?

Oct 30 06:20 AM

[Russ Wetherill:]

The distinction I would make is between contributing factors and enabling factors. There are many contributing factors which influence buying decisions, but not all of those factors make buying possible.

The $8k first-time buyer credit and the low-interest-rate loans make purchasing homes at current prices not only desirable, but also possible. These government programs, along with FHA loans, qualify many more buyers at current prices.

This is an example of sine qua non (without which not). Absent these government programs there would be fewer buyers bidding for the same properties. More buyers means more sales at higher prices.

Of course, the other side of the supply-demand equation is being manipulated as well. Banks are restricting supply by failing to foreclose on delinquent owners. This practice is enabled by a change to the FSBA mark-to-market rules which allows banks to value assets by other methods than market price. This wasn't the case when the assets were increasing in value and the investment banks could mark up the value to the new market, with a 30:1 leverage and loan out even more risky loans. But I digress.

Yes, the market price is being overtly manipulated. What's more, the government's reason for this is to stabilize the economy, which may very well be true. But, this certainly does not mean that prices are increasing in any real sense, or that it is a good time to buy.

Then again, for a realtor, any time is a good time! I remember back in 2006 being told that now is good time to buy before you are priced out of the market. Really? Does that even make sense? I guess realtors don't have to make sense, they just have to say something that makes buyers fearful.

Right now, realtors are saying that we should buy before rates go up. Really? But when rates go up, buyers can afford less home, so the prices will drop. Won't they? At which point, my equity will drop. Why is this good, again?

The secret that the realtors don't want you to know is that buyers will pay what they can afford to pay. If rates go up, payments remain largely the same because that is all the buyers can afford. That is why I would prefer to buy a house at 10 percent interest rate, and not 5 percent. When the prevailing rates drop to 7.5% then my house goes up in value and I can refinance into a lower rate. If I buy at 5 percent, when the rates go up to 7.5% then I won't be able to refinance, and my home just dropped in value. Buy now before rates go up! Great Idea!

Oct 30 03:56 PM