+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

SHILLER: Enough With The Happy Housing Talk -- House Prices Will Be Flat For 10 Years

May 1, 2013, 21:19 IST
More good news on the housing market. Yesterday, the S&P/Case-Shiller Home Price index posted its biggest annual increase since 2006—just before the housing market crash.

Home prices in all 20 metro areas included in the index rose for the second month running. Phoenix led, with a 23% annual increase followed by San Francisco (18.9%), Las Vegas (17.6%) and Atlanta (16.5%).

Still, Robert Shiller, co-creator of the index, is cautious. “There’s a lot of excitement in the housing market now but it might be just short term,” he tells The Daily Ticker.

Shiller says the housing market is operating in an “abnormal economy” where the Federal Reserve is buying $40 billion worth of mortgage securities and $45 billion worth of Treasury notes each month. This has driven mortgage rates to record lows.

According to Freddie Mac’s weekly survey out last Thursday, the average rate for a 30-year fixed rate mortgage is a record low 3;4%; for a 15-year fixed rate mortgage it’s a record low 2.61%.

Advertisement

The Fed will eventually stop buying these securities, says Shiller, and mortgage rates will rise.

Shiller, also an economics professor at Yale University, says the biggest home price increases now are seen in multifamily rather than single family homes which reflects a shift from home ownership to renting. The buyers are investors who rent their properties.

“Most of the increase in households in this country has been met by an increase in renting,” says Shiller. “My own survey data with Chip Case confirms that people feel more positive about renting.” He suggests that those investing in real estate buy homes that are most suitable to convert to rentals.

Another shift that Shiller observes in the housing market is the growing popularity of urban areas and suburbs near those areas.

Shiller says people don’t want to commute long distances because of relatively high gasoline prices and in the current “ideas economy,” many want to live in close proximity to others.

Advertisement

There are also demographic shifts: aging baby boomers who no longer enjoy working on the upkeep of their homes and the increase in single-person households.

When asked where this all leaves the housing market 10 years from now, Shiller says home prices will be “about where they are now” after adjusting for inflation.

Here's the video >

You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article