From the Daily Record:
Professor sees decline in housing market
House prices may continue retreating for five years and retreating substantially, Yale University professor Robert J. Shiller said Wednesday.
But he emphasized that “I don’t really know” because it’s so hard to predict speculative markets. “I’ve learned humility. This is not a forecast.”
One reason that the U.S. has a real-estate bubble is that no one can “short” the housing market, or bet that it will go down, the way investors can make money when stocks go down, Shiller said. (Short-sellers make money by selling shares, which they have borrowed, after the prices have sunk.)
Shiller recently helped start a market where investors can bet the direction of housing prices in 10 cities.
If builders saw that investors were betting that house prices would decline, they might stop building so many houses, he said. When builders keep building because prices are high, they cause a glut in the market, leading to the bursting of the bubble, he added.
Shiller, whose book “Irrational Exuberance” predicted the stock-market crash of 2000, said the real-estate bubble has been caused by people’s “exaggerated expectations.”
“They didn’t know that prices can go down … . The market has been captured by zealots.”
Besides, people talk about buying a house in 1950 for $6,000 and selling it years later for $400,000.
“But all prices have gone up”because of inflation, he pointed out.
Stories about successful real-estate investors spread the word, he went on. “People remember stories.”
Asked how to identify a bubble, Shiller suggested that people talk to taxi-cab drivers.
If the drivers talk about the astonishing amounts of easy money being made in something, that somewhere is a probably bubble.
I love the cab driver theory.
prices go down?
He obviously has not been riding in Cash Cab!
(tv show for those who don’t know it)
Hovnanian Widens 2Q Loss Projection
AP (Fri 7:50am)
• Hovnanian Guides Lower
at TheStreet.com (Fri 7:33am)
• Hovnanian sees loss bigger than previously thought
Reuters (Fri 6:46am)
• InPlay: Hovnanian Entrpr guides below consensus
read: http://finance.yahoo.com/q?s=HOV
The ability to go short (or lack thereof) is a bit irrelevant in a bubble. Witness the tech bubble in stocks: markets can stay irrational longer than a short seller can stay solvent.
I love Cash Cab! I’ve never seen him though. If I did, I’d take a ride for the heck of it.
I agree. I’m not sure how the ability to short housing would have made a difference. You could short tech stocks, yet the NASDAQ blew up into a spectacular bubble.
Truth is, most rational people would shorted too early and lost a lot of money.
The cab comment was great. I was in a cab in Ft. Lauderdale 2.5 years ago, and the driver was telling me about all the money to be made in real estate. The best way, he told me, was to buy rooms in a nearby Hotel that was being built. The hotel would book and manage the room, and you would get a cut of the income. He said it was a guaranteed riches.
He got that cab line from JFK’s father, who while talking about the stock market crash of the 20’s said something like “if the shoe shine boy is talking about stocks, it’s time to get out”
I will look for the exact quote
found it:
This is the time when Joseph Kennedy made his famous quip that you know it is time to sell when the shoe-shine boy tries to give you stock tips.
Another pundit stealing quotes from the past? Whodathunkit.
As a side note, I remember an especially interesting story on marketplace during the tech boom about the cab driver who made a fortune in the stock market…..it was that easy if you timed it right and put enough into it.
It is amazing how this fall-off in real estate sales has been so dramatic, but I have zero respect for most economists. They are over paid and often wrong observers who operate in the ivory towered academic world.
P.S……if you are willing to invest a large sum of money into an asset and sit on it for FIFTY YEARS….you too can usually realize a significant return…..$6k was a lot of money in 1950.
GM Subprime Slimed!
Watch—> http://www.paperdinero.com/BNN.aspx?id=171
GM’s Q1 2007 earnings plunge 90% as subprime lending from their GMAC family of companies comes home to roost. Ironically, it appears that the lending-housing debacle may force GM to close plants and have layoffs which will inevitably put more pressure on housing.
Originally aired on: 5/3/2007 on Nightly Business Report
Running Time: 2 minutes 37 seconds
prics go down? what prices go down? housing prices never go down. We just have hot times and cold times.Think long term, people!
Are you sure you aren’t confusing inflation with appreciation?
jb
the only appreciation i have is for you james!