Robert Shiller—who called the 2008 housing bubble—thinks he knows how the housing market will exit its latest period of exuberance
Robert Shiller, a Yale University economist, released a book in March 2000 titled Irrational exuberance, which declared that the stock market was a bubble. Soon after, the tech bubble burst. Then, in 2004, a Yale University economics professor drew attention to rising house prices with a paper titled Is there a bubble in the housing market? Finally, in 2007—before home prices collapsed in the United States—Schiller correctly predicted that home prices would soon collapse.
Fast forward to 2023, and Schiller is once again keeping a close eye on the US housing market after a period of exuberance during the pandemic, which included a 43% rise in US home prices measured by Case-Shiller National Home Price Index—the single-family catalog Schiller helped build several decades ago.
Only this time Shiller isn’t predicting a national housing price collapse — or an ongoing boom. Instead, Schiller It went on CNBC last week It seems to indicate that national housing prices will move somewhat.
“The housing market is different from the stock market, and that’s usually expected. It’s been growing since 2012, it’s been about 10 years of steady growth in home prices. But it’s probably coming to an end with this cycle of rising interest rates,” Schiller said.
Throughout the boom, Schiller believes some exuberance entered the housing market as homebuyers scrambled to lock in mortgage rates at 2% and 3%, which they knew wouldn’t last long.
I think the fear of rising interest rates has affected people’s thinking. It’s not just homeowners, it’s also new buyers who wanted to get in before interest rates go up even more. “They wanted to take control, so that had a positive effect on the market, but it came to an end,” Schiller said.
Last summer, Schiller suggested to CNBC that a pandemic housing boom could be replaced by a period of falling home prices. In August 2022, he said: “The Chicago Mercantile Exchange has Market for futures contracts for home prices…that’s in retardation now; (Home) prices are expected to decline by just over 10% by 2024 or 2025.”
Whereas national home prices as measured by Case Schiller did fall 5.1% Between June 2022 and January 2023, they have since rebounded by 2.8% through April.
However, Shiller hinted last week that the recent national home price gains may just be a seasonal ballooning.
“Part of what happens in the increase in home prices is just seasonal, it’s summer, and it usually goes up in the summer,” Schiller said.
If Schiller is right and this spring/summer national home price gains are just “seasonal,” that could mean a return of the month-on-month price decline later this year as the housing market enters the seasonally slower fall/winter months.
“We’ll see if we get a soft landing (for the US economy). But it’s a possibility. I’m not panicking one way or the other,” Schiller said.
