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Robert Schiller Interview on the Housing Market

Will the housing market be impacted by a recession?

ROBERT SHILLER: In fact, the real estate market has been a cyclically sensitive thing. So if we’re having a recession right after the bull market in real estate, I would expect to see a substantial impact on that. The chatter, the talk about the outlook is really focused very much on recession. And the confidence indexes are down.

And I think– now the term “self-fulfilling prophecy” was coined in 1940 by a sociologist, Robert K Merton, reacting to the Great Depression, the 1929 crash. And I don’t mean to be alarmist and all, I don’t think it’s going to fall 85% like the S&P composite did then. But I can see that there is– you know, it’s kind of to be expected that the price will go down in the next year or so.

– And what are some of the nuances that you’re noticing? We keep seeing Dallas popping on lists. We keep seeing, obviously, some cities in Florida as well. What are some of the nuances that we should be looking at behind the headline numbers?

ROBERT SHILLER: Well, there’s always a lot of nuances. I have to put it in context. We’re in the COVID pandemic still. We’re also having an awakening new fear in– of inflation, which had been almost forgotten in the recent years.

But now it’s coming back. And mistrust of what the Fed will do is– with interest rates is also there. So we have a lot of ingredients that might lead to a recession. I don’t like to make extreme forecasts, though.

Home prices haven’t fallen since the 2007-2009 recession. Right now, things look almost as bad. I like to look at the NAHB traffic of prospective buyers. It’s one of the components of their housing market index. And that has fallen off a cliff.

It looks like, since just a few months ago, the talk is really negative, yeah. And existing home sales have gone down. Permits are down. So there’s a lot of signs that we’ll see something. And it may not be catastrophic. But I think it’s time to consider that.

– Well, Professor Shiller, just drilling down into that– because you said it might be as bad as– as bad as what? Are we talking about 2006, 2007, I believe. I guess try to quantify some of the drop that we could potentially see.

ROBERT SHILLER: Yeah. Well, the other question, of course, is whether the drop will be quickly corrected like it was after 2007. In fact, it went into a huge bull market. So I have some diffidence about predicting this market. It’s a very volatile market.

In the short run, it’s trendy, though. You know, it doesn’t look like a random log. It looks smooth and upward trending. But if you’re trying to forecast out years as it’s relevant for a decision to move the family and buy a house somewhere, then those things, they are highly uncertain.

So it’s risky. You have to take risks in life. You can’t– you can’t avoid that if you’re having a good life. But I think that the risks are heightened right now for buying a house.

– A lot of buyers on the sideline then were priced out of this market. Hopefully, these prices come down, get them back in. We shall see. Robert Shiller, Sterling Professor of Economics at Yale University, great to have you, sir. Thank you.

Source: Yahoo News

Updated: Boston Real Estate Blog 2022

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