Here’s an excerpt from the Shiller interview:
BI: Where are we now in terms of the deflation of the housing bubble? I know the Case-Shiller numbers have started to turn down again; how much more of that is there to go?
RS: I wish I knew the answer to that. The housing market is behaving strangely. The peak in the market was around 2006; it went down for three years and if it behaved the same way it had in the last cycle, it would continue going down for years more. But then it had a sudden and sharp turn-around that we rarely see in this market, in the spring of 2009, and that seems to coincide with the American Recovery and Reinvestment Act, which created also the Homebuyer Tax Credit. And the recovery lasted about as long as the tax credit lasted.
And then it started turning down, a little bit, but I believe the Tax Credit was a good part of the story because the biggest price increases from 2009 – 2010 period was in the low priced homes. And remember the tax-credit was phased out for wealthy people, but even the high priced homes reversed, so it’s a little puzzling. UK home prices went up at the same time, so it’s not clear to me why this sudden shock … I think it’s also because of the panic over the Lehman crisis in September 2008 was beginning to wear off, because it wasn’t as bad as some people thought.
The question is will it resume the downward trend? I think it could, maybe not rapidly, but I think there could be further house price declines.