Robert Shiller Debunks Housing as an Investment

By on February 9, 2013

Robert Shiller - February 2013Robert Shiller, Yale University professor and author, and the co-creator of the S&P/Case-Shiller Home Price Index, was interviewed this week by Bloomberg’s Adam Johnson and Trish Reagan (video below).

Admitting there currently appeared to be upward momentum in the housing market, Shiller cautioned that the last two months were down but that was probably due to seasonality.

Shiller said the housing market shows greater momentum than the stock market, but he was not ready to call this a major rally.

Shiller commented on some traditionally stable local markets (Phoenix and Las Vegas) which have demonstrated great price volatility.

Shiller said the homeownership percentage in the U. S. had dropped from 69% to 65% and the public may not enthusiastically embrace owning a home again. He mentioned the Japanese experience in which housing has been losing value for 20 years, cautioning, “that its not back off to the races again.”

Trish Reagan posed the question of the effect of rising interest rates on housing possibly leading to another leg down. Shiller indicated another leg down could happen although he didn’t want to come off as pessimistic, but rather realistic. “This is a speculative market, they go up, they go down, they’re hard to forecast,” he said.

Shiller took aim at speculators in the housing market warning, “housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better.” Shiller added that housing investment was a fad that took hold in the early 2000’s, and he doesn’t expect it to come back with the same force.

Speaking of an alternative to owning a home, Shiller said, “People might just decide, yeah, I’ll diversify my portfolio. I’ll live in a rental…that is a very sensible thing for many people to do.”

Shiller said the real appreciation rate of houses from 1890 to 1990 (100 years) was zero. Shiller elaborated on the reasons behind the lack of real appreciation in housing.

The interview continued with Shiller debating an unidentified guest regarding the future direction of home prices, discussing the number of homes he owns and why, the impact of increasing property taxes and possible eliminatation by Congress of the mortgage interest tax deduction, and the move of Toll Brothers into producing multi-family units.

Back in April 2012, Shiller noted that housing inventories were very low and that “people aren’t as smart as the seem.” [link]

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