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June 09, 2011 at 10:29 AM
The housing market is in for more losses, and the bubble that preceded its unprecedented drop was "unique in U.S. history," Robert Shiller, Yale professor of economics and author of "Irrational Exuberance," said Thursday at the Standard & Poor’s Housing Summit 2011: Boom, Bust and Beyond on Thursday.
Addressing "unusual factors" that he said influenced the outlook for the housing market, Shiller spoke about the human factor, specifically the tendency of humans to focus on anomalies that both command a person’s attention and affect the decisions he makes. He pointed out that such an instance occurred during the dot-com boom of 2000-2001, saying that it was "not so much a failure of judgment as a failure of attention."
A similar focus on an anomaly occurred during the housing market boom, he asserted. The anomaly was that people stopped regarding homes as homes, and began to think of them as investments in land — although, according to the National Association of Homebuilders, 80% of a home’s value is in its structure and the other 20% is in its land.
The resulting boom, as people became obsessed with real estate, gave way to "the biggest collapse in home prices the country has ever seen," even bigger than the collapse of the Great Depression. During the Depression, Shiller said, home prices went down but so did the prices of everything else. When the housing market collapsed this time, home prices went all by themselves, because their fall began in 2005, prior to the beginning of the recession.
Pointing to the post-World War II era, another time during which real estate prices also boomed and carried rents higher as they rose, Shiller said people attributed the increases to the aftereffects of the war, which had shut down the construction industry and instituted rationing. The postwar boom meant that the restrictions were gone; people who had wanted homes were finally able to buy them.
