Shiller on housing bubbles: we may be off to the races again

Robert Shiller (c) Len Irish

According to the S&P Case Shiller home price index, single home prices in the US have been rising for the fourth month in a row. Other sources claim that home prices may have hit the bottom and are rising again, after being hammered previously. In some areas, home prices may have lost 60-70 percent of their pre-crisis values. These areas will most likely benefit from the currently stabilising housing market. However, the current housing market stability could be the beginning of the next market upturn, or even a housing bubble.

According to professor Robert Shiller the upward momentum that we see today is partly seasonal:

If you look at a plot of the data it doesn’t look like that big a rebound yet and it could just be mostly seasonal. So I’m not confident. I think it’s possible that this is the bottom but I’m not at all confident. I tend to worry more than most people about the longer run down trend resuming.

It could be that some sort of housing bubble will be forming in some area, as this develops. Shiller:

These things take you by surprise. Bubbles occur sometimes in the least optimal time. That’s because people think that you want to buy before the news. So, in the midst of a recession, you could start a bubble. [ ] Northern Europe has a housing boom going on right now, despite the troubles in Southern Europe. It is quite surprising that there is such a boom going on there.

Furthermore, Shiller comments that the US cities that are most likely to see a bubble-like behavior in the housing prices are the more speculative markets like Phoenix and San Fransisco. Cities like Chicago and Atlanta went up already over the last months. It should be noted however, as Shiller points out, that rising home prices may just be caused by decline in foreclosure activity. Foreclosure activity is down a quarter from a year ago:

That’s going to boost the index. [ ] It could be that that’s the kind of stimulus that we’re getting. The stimulus being that people see home prices going up because there aren’t as many foreclosures. And they are starting to get optimistic and reinforcing that. That could be what’s happening.

Further reading on this subject: “Is This the End of the Housing Bust? Not So Fast, Says Shiller” – WSJ blog by Joe light

The interview with professor Shiller can be found below:

Shiller: Housing Bubble Could Be Forming in Some Areas