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Robert Shiller

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Housing Market Looks Likely to Drop: Robert Shiller

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What You Need to Know

  • Futures market indicates home prices will fall by more than 10% in 2024 or 2025, the economist said.
  • Prospective homebuyer traffic 'has fallen off a cliff,' Shiller said.
  • Schiller also cited several ingredients that could lead the U.S. economy to a recession.

Yale economist Robert Shiller, who has accurately identified stock market and housing bubbles in the past, recently cautioned that the housing boom spurred by the coronavirus pandemic may be poised for a downturn.

More broadly, Shiller, speaking to Yahoo Finance, cited several factors indicating the potential for a recession, including the ongoing pandemic, reawakening inflation fears and mistrust of what the Federal Reserve will do with interest rates.

“We have a lot of the ingredients that might lead to a recession,” he said.

Home prices, up roughly 40% nationally over the past two years, haven’t fallen since the 2007-2009 recession, Shiller told the news outlet earlier this month. “Right now things look almost as bad.”

While home prices in May were up nearly 20% year over year, Shiller said, “It’s not necessarily a bullish indicator.” 

National Association of Home Builders statistics on traffic of prospective buyers, a housing market index component, “has fallen off a cliff since just a few months ago. The talk is really negative,” he explained.

“Existing home sales have gone down, permits are down. There’s a lot of signs that we’ll see something. It may not be catastrophic but it’s time to consider that,”  Shiller said.

The Chicago Mercantile Exchange home price index futures market is in “backwardation,” he explained, referring to the point where an underlying asset’s current price is higher than the futures trading prices.

“Prices are expected to fall by something a little over 10% by 2024 or 2025,” he added. “That’s a good estimate, that’s the market at the moment,” Shiller said.

The economist expressed “some diffidence” about making predictions for what he called a “very volatile” housing market, adding, however, that “the risks are heightened right now for buying a house.”

Yahoo Finance reported that double-digit-percentage national housing declines are rare, having occurred only in the Great Depression and Great Recession, and added that various mortgage and real estate organizations, in contrast, expect housing prices to increase further or experience only modest declines.

This week, the National Association of Realtors offered more housing market data points, including a 5.9% monthly decline and a 20.2% one-year drop in existing-home sales in July, along with a rising inventory of unsold existing homes. While the median existing-home sales price rose nearly 11% to $403,800 year over year, it slid by $10,000 from June.

(Image: Bloomberg) 


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