Shiller On Housing: Back? On Track? Or Still Cracked?

Tyler Durden's picture

Following on from our earlier discussion of the boomerang foreclosure problem, we thought a recent interview between Goldman and Bob Shiller well worth considering - given his relative independence and honesty.

Source: Goldman Sachs

Excerpted from a Goldman Sachs interview with Bob Shiller:

What’s been driving the improvement in the US housing market over the past six to nine months?

Part of the improvement is just the benefit of the summer season. Summer and early fall have traditionally been periods of increasing home prices. Another factor is the ongoing decline in foreclosures. Foreclosed properties tend to sell at low prices and as the foreclosure rate declines, we might expect to see aggregate home prices increase. I also think that price increases that were likely caused by the decline in foreclosures may have been mistakenly taken by the public as a note of optimism, leading them to react to the thought that home prices might be rising again. Inventories of homes for sale are also low, in part because sellers have been holding off on putting their houses on the market in the hopes of further price increases or because millions of mortgages are still under water so many homeowners feel “stuck” in their homes until/unless prices rise more strongly and they can pay off their mortgage with the proceeds of their sale.

Has the US housing market bottomed?

Maybe, but I still worry about further price declines. There’s no really concrete reason for an upturn now; a recent survey of home buyers didn’t find any sudden change in optimism and there seems to be a souring on the idea of home ownership. That might reverse again as the crisis ends. But I suspect that it’s not easily reversed because the whole idea of proudly owning a home has been tarnished. And now Congress is talking about eliminating the whole mortgage deduction or government support for Fannie and Freddie. These are all clouds on the horizon. That’s why I think home prices may still go down.

And on buying a home now?

People think of housing as a form of investment, but really it’s a consumption good. Houses are built to please you and then they wear out, go out of style, and are expensive to maintain. They have a capital value but capital gains on housing adjusted for inflation over the last century, from 1890 to 1990, was about zero. So housing is not really an investment.

Should every American own a home?

Definitely not. There’s something to be said for home ownership; it continues to symbolize our detachment from the old world where landlords lorded over us. That sense of independence is an important part of our culture and I don’t think it is going away anytime soon, although it may be diminishing. But the emphasis on the “American dream” of home ownership was overdone. We were so single-mindedly pursuing home ownership that we allowed our lending practices to deteriorate to a tragic end. And there are many advantages to renting, which oftentimes allows more flexibility and more convenience. Renting also allows people to diversify investments. For many people, buying a home involves tying up all of their cash into one asset – their home.

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Muppet Pimp's picture

Important to keep in mind Shiller becomes irrelevant for awhile once it is game on.  What will he have to poo poo then?

Talking about the entire country as a single housing market is a fools game.  Good for some clicks on msm, not relevant for much else.



markmotive's picture

I think he still says he'd rather get 4% on stocks than invest in housing.

francis_sawyer's picture

I'm back. I'm black. The mountain's about to crack.

TruthInSunshine's picture

Once the completely engineered plan to restrain inventory gives way, and oh it will give way, the majority of buyers in the last 3 years will be as horrified as investors in Trump International Resorts to discover what real price discovery looks like:

Trump Plaza Sold for .... $20 Million

Trump Plaza, which cost $210 million to build [in 1984], opened in May 1984 as one of Donald Trump's pet projects.


The sale price was also consistent with the fire-sale prices casinos have been going for lately in Atlantic City. Resorts Casino Hotel sold for $31.5 million in Dec. 2010. Trump Marina Hotel Casino fetched $38 million when it was sold in May 2011 and became the Golden Nugget.


Billionaire Carl Icahn bought the Tropicana Casino and resort out of bankruptcy court for $200 million worth of deeply discounted debt; the casino originally went on the market for about $1 billion when its former owners lost their casino license.

ebworthen's picture


This is nothing but another bubble to benefit the banks and screw the citizen.

You have got to be smoking some good shit to think that housing, and the economy, are recovering.

Speculative buying by those with cash, the ole' house flippers, and banks trying to unload what they can on unsuspecting "investors".

Housing bubble part two, or is it part three?  The fucking FED is a criminal organization benefitting the banks and their cronies in Washington.  They are blowing another bubble but they don't give a shit or are delusional.

TruthInSunshine's picture

They know what they're doing, and they've dispatched their useful Goebbels, like Krugman, to push their propaganda amidst their cult of brainwashed followers.


Krugman's Caught in Lie on Housing Bubble

Not sure if you saw this, but I watched the video mentioned in the comment section on your site and the poster is correct.

Starting around 19:40 or so of this video from his Bloomberg appearance the other day:

Krugman claims that it is the "great lie" that the Fed created the Housing Bubble.  However, he wrote this in his blog in 09:

"What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened."

This is hardly unique, just as his editor at the NY Times pointed out in his final column:

"Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults."

And then the exchange between Krugman and his editor showed how Krugman cannot handle being defeated in a debate, just as we are seeing now after the Ron Paul showdown.


Krugman is the ultimate statist tool. He hawked his book "End This Depression Now!," and spoke of the  reality of the economic depression we are now in, right up until about 16 weeks prior to the election, when he suddenly started to applaud Obama for policies that he claimed were helping create an economic recovery, despite objections from Congress.

CheapBastard's picture

mark, another really nice thing about stocks is with a tap of the key you can be in the market and wiht another tap get out after yrou stock has risen 8% (or whatever). It takes a second for almost no cost if you use one of the discount brokers (ex, ETrade, Ameritrade, etc).


With RE there are steep commissions and fees plus tons of hassles and months to buy and/or sell.  Just to sell my house last year cost me 6% in realtor commissions and 3% in all sorts of fees. That sucks!

I'm a Cheap Bastard !!

socalbeach's picture

True. Around here the market is on fire,

Orange County Register (02-13): January home sales up 30% to 7-year high

"The median home price – or price at the midpoint of all sales – was up 17.3 percent from year-ago levels and was the second-highest median for any month since home prices melted down in 2008."

But we've been looking at coastal southern Oregon, and the market for nicer homes (over $500K) looks dead.

TruthInSunshine's picture

It's "on fire" right now because you have a massively constrained inventory + one of the highest rent areas in the state + FHA-pusher financing at 3.5% down yet again, which has spurred many with the 3.5% cash needed to be put down to jump from renting to "owning" (whereby owning equals still making rent payments in the form of property taxes).

Knock just one of these factors off the list and see what happens, or better yet, just wait a little while and it will become obvious.

And yes, "California is still a great state to live, blah blah blah" if you have buku wealth and can avoid the scum, traffic and minimize your exposure to the filthy air (preferably by living on one of the nicer stretches of coastline where the prevailing winds help keep the smog away), otherwise, for a fair number of its residents, it's a Madison Avenue marketed pig wearing lipstick.

I lived in La Jolla for 5 years and Rancho Cucamonga for yet another 3.

I would consider again living in La Jolla, Pacific Beach, or a VERY few other areas of California; they can take the rest of their shithole state and shove it up Feinstein's asshole.


Cursive's picture

Home ownership?  If you've got a mortgage, the best you can say is you have title, not "ownership."  If it can be foreclosed, you don't "own" it.  Also, if the state can place tax liens on it, you don't fully own it.

IridiumRebel's picture

Sold my house today! Next thing I buy will be a shitload of land in South America.

derek_vineyard's picture

Whats to keep them from taking it from you?

Joe moneybags's picture

They're known for their lack of corrupt government in South America, and for adhering to the gold standard for their currencies.

IridiumRebel's picture

You're right....I should stay here as we ramp up to civil war with a government that is taking any remaining liberty from us only to "protect" us with a fleet of drones, DHS thugs and a government that will begin to turn on its own. Just because Argentina is fucked up doesn't mean all of the others are a mimic. Why do I need a gold standard when I simply own the fucking gold? Many govs down there are functional and fine. 

IridiumRebel's picture

Costa Rica

IridiumRebel's picture

What is to keep this gov from taking it from you? Debt/currency crisis is a helluva game changer. 


larz's picture

you may want to think that through iridium,  I agree Amerika sucks right now but we know the skelitons

Go Tribe's picture

Good for you. If you have to own a home, the best investment is a trailer on a cheap piece of land. The trailer will depreciate but at least you won't sink 25% of your income into it, paying on it for 30 years, and the land will maintain some value. Homes are a sucker's investment.

Never One Roach's picture

Shiller may be 'worried about declines' but I am seeing price declines all over. I guess that little corner of the country called SoCal is increasing transiently due to The Alien Loot.  But as the NAR yells repeatedly, "All real estate is local" and my locality is still correcting down to much more realistic levels; i.e., slowly dropping downward toward a normal ratio of price to income and price/rent.


Still has a few years to go but if they keep handing out zero down and near zero down mortgages, the pain will be prolonged.

Joe moneybags's picture

Mr. One Roach, if you like where you live, enjoy the fact that you can buy a nice home for a reasonable price.  Our European friends on this site, as well as the Aussies, Japaneses, and just about any others, can attest that the average Joe in those nations pay a much higher price, relative to their incomes, for their homes.  In the U.S., it takes about 4 years of gross pay, per househould, to buy an average 1800 sq. ft home, with garage, on fee simple land.  With 20% down, you can get a 30 year 4% loan. Can anybody out there in cyber space beat that?

ebworthen's picture

Demographic downturn that won't turn around, offshored career employment, baby-boomers downsizing, parasitic banks frontloading refi's that people are starting to default on.

Really, all you need to know is that the criminal FED is buying Mortgage Backed Securities to prop the banks and to hell with the taxpayer and the people trying to pay their underwater mortgages.

Joe moneybags's picture

Buying the 08-09 market crash turned out to be winner, and buying the 2006-2011 real estate crash will also trun out to be a winner.

Cabreado's picture

"That sense of independence is an important part of our culture and I don’t think it is going away anytime soon, although it may be diminishing."

Good call.

So then, apply and extrapolate...

Housing is easy.
Housing is a symptom.

Too much skipping right by the important stuff, as if an "economy" ultimately drives the show...

a few words to the self-absorbed:  it does not.

847328_3527's picture

Society is uber mobile right now with job changes/losses, boomers retiring, kids moving off.....and so on. Nothing is permanent. In fact, little lasts more then a few years anymore.

Very good chance house prices will continue to drop in many locations so why lock into a 30 year loan? One problem with a house is they are not easy to sell---long waits, huge costs, hassles, etc. as someone else mentioned in above or in the other RE article today.

Each person's situation is different but the entire "American Dream House w/ picket fence" concept needs serious rethinking in this rapidly changing economy.

Lord Of Finance's picture

I've been living happily as a renter for years. A few years after college I was able to buy my first house with better pay and saved money, but when I hit the housing market in 2004 I saw prices at ludicrous levels. For example; my grandmother lived in a row house outside the city of brotherly shove. When she passed in 97 that house was put on the market for $90,000. It was sold, then the owners sold it in 2004 for $250,000!!!!!!!!!!!!!! For a row home! I had every asshole telling me to buy now because prices were only going to go higher.


   Before 2006, I was an economic ignoramus. But even in my ignorance, I new that that did not sound right. I found a great rental cottage on a farm out in the country, about 20 miles outside Filthadelphia. The property owners were simple folk and rented the renovated cottage for just $850 per month. The average rent on a home that same size was $2,250!  I still live here to this day. I have a great view of the land and the main house is 75 yards from me. It is no longer an operating farm, just massive land. There are many such properties in the countryside. I refused to by a house out of protest for the insane home prices. The people drive the market through demand and these numbskulls bought the overpriced homes. I do not believe a home is an investment, but lets just agree with the morons that it is. If it is then these assholes made a bad investment, and if the price goes down, tough shit!  They bought the overpriced home. You made a bad investment and now you are suppose to learn from your mistakes. But not so. The idiots get rewarded and the smart shoppers such as myself get punished. I am glad I found what I found. Seek an you shall find.

new game's picture

not mentioned was 3 percent rates; as 20 year R.E. broker -fucking hello-people buy a payment.

also not mentioned, net sum zero factor as sell one buy one for most over50 crowd with mentally deranged brains and must still own to feel fulfilled in life.

signing that mortgage is the fucking worst thing someone could do right now.

one must be able to be gone in a heartbeat when the ants comes marching in...


justsayin2u's picture

Prices are set to explode higher - better get on board now before its too late.  Lever up with an interest only note - housing never goes down.  Don't miss the rally!!!!

IamtheREALmario's picture

If home ownership is BAD then why are the banks pouring all sort of money into companies that are buying private homes? The equation is easy for me.

A. Buy a home, pay some interest, some of which comes back in a tax break and save money in equity that on the average will match inflation

B. Rent a home and pay some other person/entity to save money in the equity and take a profit on top.


Lord Of Finance's picture



Who here said that? What led your mind to deduce that. In many cases renting is smarter than buying. It can also be the better economic decision.


I said, and others agreed that they live happier as renters. The examples of the advantages of renting in an overpriced market where the normal home price has trippled should not have to be explained to a person with good logic. 


   Oh yeah. You mentioned the tax deduction. There is a problem with your logical deduction. There has to be if your saying that buying a $250,000 row home because of the morgage deduction would have been smarter then renting a house with more space and muuuuuuch more land in the country for nearly 1/3 of what the monthly morgage would have been. 

Oh yeah. When something breaks and leaks, I dont pay for it. If I am not happy with the replacement refrigerator, then all I do is tell them which one I want to purchase and pay the difference on whatever they were going to replace it with. It saved me an additional $900.00 on my 'sub-zero'.


Oh yeah. My rent some 8 years later is just 925.00. That $250.000 row home is $210,000!! The current owner is underwater $50,000 and the dipshit is still paying more then double my rent in morgage for less house,land and peace of mind.

jcaz's picture

Plus, don't get snowed by what you think you hear banks are doing-

If you listen to these guys, they sound like they invented water- "gosh, it's a no-lose bet for us, buying all these houses- we'll rent them till prices improve, then sell them- if they don't improve, we'll still cash-flow on the rent"-

Yeah, cause no one else has EVER thought of doing that before....

Little tip for the idiots who NEVER learn from history-  the cash flow NEVER exceeds what the overhead entails in the long run.  At the very best, if they can market-time the next bubble, they can make some profit unloading the properties onto the next sucker;

But of course, they never sell at the top.

If Uncle Warren really thought he could make money with this scheme, he'd do it- he has the dough...  But he won't go near it, and that's all the smart money needs to know.....  But hey, he'll pimp it all day, cause it helps out the stuff he DOES own.....


Lord Of Finance's picture

Oh yeah. One last thing. In part A of your missed point you state that equity rises with inflation. Thats the point I was making. We are protesting the inordinate bubble rise above inflation by finding better options through rent.




When I respond to a post I make sure I understand the arguement the poster was writing. Therefore I will have the proper logical framework to respond. 

Suggest you do the same.