Due out at 9!
From the WSJ:
WSJ: Did we finally hit a floor in home prices last year?
Mr. Shiller: The trend in home prices seems to be up now. It has been going up. That’s upward momentum, which by my general rule of forecasting has been good for the future. I’ve been tentative about that. It may well be the turning point.
But I’m not sure about that. I’m more worried than most people that it could be a short-lived turnaround. It could be like the 2009-10 upturn where we saw home prices rising right after President Obama took office and right after the home-buyer tax credit was instituted. In that upturn there were some cities that did quite spectacularly. And then that fizzled. I’m not too sure that this one will extrapolate either.
WSJ: Why are you more worried than most people?
Mr. Shiller: Part of the reason the indexes have gone up is because the foreclosure boom has receded. Foreclosed homes sell at a lower price, and the share of those sales has been falling. People might be deceived by this by looking at the indexes. The question is whether the gains will be sustained.
There isn’t any sign of the real enthusiasm we saw during the last bubble. The question is whether this could be the very vague beginning of a new boom? I guess it could. I just don’t know. Then there are issues with what the government does to support housing. They’re doing everything they can. They say they’re going to stop some day. When will people start worrying about that?
WSJ: There are some people who look at the double-digit annual price increases in Phoenix and elsewhere and wonder whether we’re seeing new “mini-bubbles.” Is that a concern you share?
Mr. Shiller: Home prices are back down to a reasonable level. Why should they go up a lot? It means you have to have a succession of eager buyers that would bid them up. Historically major bubbles tend to occur at widely separate intervals. Once it bursts, usually, historically, people are fed up for a long time.
WSJ: Could it be possible that prices are rising by double digits in these places simply because they fell below their long-term relationship with incomes and rents, and are now bouncing back off of that?
Mr. Shiller: Phoenix overshot. Prices got too low. In real terms it was down well over 50%, maybe close to 60%. Now it’s bumped up. It doesn’t look out of line either way now.
WSJ: What do you make of the investor activity in the market right now? A lot of these buyers are all cash buyers—no leverage—buying on rental return. Are you worried about any return of speculative purchases?
Mr. Shiller: In a housing debacle, I’m sure some houses are underpriced, and there is probably a profit opportunity for some people who are going to choose carefully. I’m not surprised that this is going on. There seems to be a shift in public tastes for the time being at least for rental. So this business doesn’t surprise me. It seems to be an appropriate response.
WSJ: For somebody with a stable job, who plans to live somewhere for more than a few years, is this a good time to buy a house?
Mr. Shiller: I think it’s OK, especially because mortgage rates are so low. This isn’t a time to get a flexible-rate mortgage! Get a 30-year, fixed rate mortgage. Rates are so low. They have gone up a little, but they’re still very low. That’s a real opportunity. Prices are not particularly low, but they’re not particularly high.
WSJ: What’s your outlook for home prices?
Mr. Shiller: It’s especially hard to say. We could be looking at a 1-2% increase a year for the next five years. That’s a reasonable scenario—1-2% a year, and it might go up more than that. I don’t know. My main message is that it’s a market with risk in it. We don’t know the future. That’s the most important message to convey.