'Troubling Signs' of New Housing Bubble Loom, Shiller Says

'Troubling Signs' of New Housing Bubble Loom, Shiller SaysIs there another bubble brewing in the housing market?
Some facts point in that direction, according to Robert J. Shiller, Yale economics professor and co-namesake of the popular home-price index (the S&P/Case-Shiller HPI).
Home prices in the United States were up 18.4 percent in “real, inflation-corrected terms” in the 16 months that ended in July, Shiller writes in an op-ed piece he did for the New York Times over the weekend.
During the housing bubble that preceded the 2008 financial crisis, the largest 16-month increase wasn’t much bigger: 22.7 percent, for the period ended in July 2004.
“Is it possible that we are lapsing into what I call a bubble mentality — a self-reinforcing cycle of popular belief that prices can only go higher?” Shiller asks.
The short answer is: possibly, but not yet.
Based on surveys of recent home buyers in major cities across the U.S., Shiller concludes that “we are not in a bubble now.” But he adds: “There are troubling signs that we may be heading toward one.”
Long-term expectations for home prices in the current survey remained relatively modest, at 4.2 percent a year for the next 10 years.
“At that rate, if consumer inflation is modest, at, say, 2 percent a year, real prices would rise only about 2.2 percent annually, and we wouldn’t return to the December 2005 peak in real home prices until 2031,” Shiller said.
Additionally, some 10.6 percent of respondents said they bought a home “only to rent out to others.”
“That proportion has been rising irregularly since 2004, when it was just 2.7 percent,” Shiller said. “The change likely reflects the recent tilt in demand toward rental housing, which isn’t likely to sustain high prices in scattered suburban housing.”
Most people don’t seem to be prompted by the anticipation of another housing boom, which is a good thing.
But Shiller cautioned: — that’s only the thinking for the moment.
“Whether these attitudes mutate into a national epidemic of bubble thinking — one big enough to outweigh higher mortgage rates, fiscal austerity in Congress and other factors — remains to be seen,” he said.

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