Robert Shiller: Housing Market Decline Could Overshoot to Downside

By on August 30, 2011

Consuela Mack interviewed Yale professor Robert Shiller regarding his views on the economic malaise, the housing market, and the stock market. Shiller believes U. S. citizen’s pride and spirit was hurt when S&P downgraded the credit rating.

Shiller believes the state of the housing market has a greater impact on confidence than the performance of the stock market. He doesn’t believe home prices will make progress in real terms in the next five years. He added that the 40% decline in home prices has brought them close to the long-term trendline, but they could overshoot to the downside.

Shiller believes home prices in the U. S. are affordable give the current level of interest rates. Shiller said there were currently housing bubbles in other parts of the world including China and Australia.

He said unemployment seems deep-seated like the phenomenon of The Great Depression.

Shiller also discussed the Cyclically Adjusted Price Earnings ratio (CAPE), which he said gives a better indication of stock values. He said the current volatility could precede a big drop in the stock market, while admitting no one knows what the stock market will do.

When asked what his one investment pick would be, Shiller said Treasury Inflation Protected Securities (TIPS), which he considered a risk-less investment. Shiller said the real return on TIPS could very well be negative over 10 years given their current price, although that wouldn’t necessarily be bad.

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