Saturday, April 24, 2010

The Housing Recovery Could Be on Shaky Ground


To understand the state of the housing market now I spoke with the co-creator of the S&P/Case-Shiller Home Price Index, Robert Shiller...

Jennifer Schonberger: The latest Fed minutes showed the central bank is concerned the activity in the housing sector could be leveling off. What is your take on the state of the housing market now? Do you share the same concern as the Fed?

Robert Shiller: Yes. Home prices have been going up for nearly a year now, according to our data, the S&P/Case-Shiller indices ... Normally we could extrapolate that kind of upward trend because historically home prices have shown a lot of momentum. But I think we're in a very unusual circumstance because of the massive bailouts, the homebuyer tax credits, the Fed's purchase of mortgage-backed securities -- and these things are coming to an end. So it's an unusual period. So I don't trust the trend that we have. I'm worried that it might get reversed.

Schonberger: Speaking of momentum, I remember in our last discussion that momentum and confidence levels are keys in your view to examining the health of the housing market. Is momentum waning now?

Shiller: In terms of the S&P/Case-Shiller numbers, the rate of growth of home prices has fallen. If you look at them in nonseasonally adjusted terms -- just the raw data -- they're falling. But if you seasonally adjust them they're going up. But they're not going up so briskly as they were in the middle of 2009. That's one leading indicator. There are others as well. One that I particularly like is the National Association of Home Builders Housing Market Index, which is based on a survey of their members. That has turned down starting last fall. So we've had months of decline in homebuilders' impressions as to the strength of the market.

Read full interview

Monday, April 12, 2010

Don’t Bet the Farm on the Housing Recovery

By Robert J. Shiller in The NY Times

MUCH hope has been pinned on the recovery in home prices that began about a year ago. A long-lasting housing recovery might provide a balm to households, mortgage lenders and the entire United States economy. But will the recovery be sustained?

Alas, the evidence is equivocal at best.

The most obvious reason for hope is that, unlike stock prices, home prices tend to show a great deal of momentum. Correcting for seasonal effects, home prices as measured by the S.&P./Case-Shiller 10-City Home Price Index increased each month from June 1995 to April 2006, then decreased almost every month to May 2009. Since then, they have risen through January, the latest month for which data is available.

So, because home prices have been climbing of late, isn’t it plausible that they’ll keep doing so?

If only it were that simple.

Read full commentary

Saturday, April 3, 2010

Encouraging Saving: Lessons for Developed and Developing Countries

By Robert J. Shiller in the Yale Journal of International Affairs

Adam Smith’s 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations had an explanation for the great diversity of economic outcomes across countries. Some countries save more than others, and thereby accumulate more capital, that is, more productive resources. This, Smith argued, was a big part of the picture in explaining why some nations are rich and some are poor. His conclusion has intrigued economic theorists ever since. There has been much interest and dispute about his conclusions.

As developed and developing nations recover from the financial crisis and begin to set new directions for the development of their countries, it will serve them well to heed the words of Adam Smith on the importance of saving and capital accumulation. Indeed, promoting the savings rate is no longer simply an ambition of developing nations, but has also become a major goal of developed nations, especially those in Europe that face aging populations.

Read full article [pdf]