Robert Shiller says decade-long rally in home prices could end when the Fed wraps its hiking cycle

• Robert Shiller said the decade-long rise in home prices may end when the Federal Reserve concludes its tightening cycle.

• He told CNBC that past interest rate increases had people buying homes before borrowing costs rose even further.

• “So this had a positive effect on the market, but it came to an end.”

Robert Shiller, an economist at Yale University, said more than 10 years of home price gains may soon end once the Fed’s tightening cycle ends. CNBC.

Since early 2012, S&P CoreLogic Case-Shiller Index of housing prices Steady jump. While it peaked in June 2022 and went into a downturn, it resumed its upward trajectory in January.

That’s because last year’s federal interest rate hike boosted mortgage rates, while preserving existing homes off the marketBut it also adds to the demand for homebuyers, Schiller said Thursday.

“I think the fear of rising interest rates has affected people’s thinking,” he said. “It’s not just the homeowners. It’s the new buyers who wanted to get in before interest rates went up further. They wanted to hold. So this had a positive effect on the market, but it came to an end.”

He acknowledged “unusual behavior” over the past six months in the index he co-founded with economist Carl Case.

Schiller noted that the housing market slumped, then started to rise again, saying “people don’t know what to do about ‘what’s the Fed going to do?'” ” Situation.”

He added that it contradicts the housing market’s traditional reputation for being more unpredictable, especially after more than 10 years of steady gains in home prices that investors assumed would continue.

“But it may be about to expire at the end of this rate hike cycle,” Schiller said.

His view contrasts with those of others on Wall Street who see the end of the Fed rate hike as a rally in home prices as borrowing costs moderate and bring in more demand.

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For example, real estate forecaster Barry Habib recently said that the next downturn will be enough to prompt lower interest rates, ease mortgages, and cause prices to rise. 3% to 7% over the next few years.

But Barry Ritholtz, CIO of Ritholtz Wealth Management, echoed Schiller’s view, saying: Price reductions would actually lower housing costs High rates have restricted the housing supply.

Meanwhile, the Federal Reserve meets next week, and markets are broadly anticipating another quarter-point increase, which could be the last in the current hiking cycle.

As the latest consumer and producer prices showed lower-than-expected inflation, Wall Street has begun to give way to expectations of an additional interest rate hike later this year.

Read the original article at Business interested