Yale Economist and housing market guru Robert Shiller published a piece in the New York Times on Sunday pondering why so many are bullish on the U.S. housing market. He notes that home prices have improved recently, but doesn't find much reason to assume that they'll continue to do so. Indeed, major obstacles stand in the way of stable home price appreciation going forward.
Shiller points to a few indicators to support his fear that home prices could stop rising or even begin to fall again. One is the National Association of Home Builders index for prospective home buyers, which he says suggests home prices will decline. He also believes consumer psychology is very different now compared to 2006 regarding the resilience of the housing market.
He continues by noting that the recession appears to be over and the government is pulling back its emergency measures. He then asserts:
Recent polls show that economic forecasters are largely bullish about the housing market for the next year or two. But one wonders about the basis for such a positive forecast.
Momentum may be on the forecasts' side. But until there is evidence that the fundamental thinking about housing has shifted in an optimistic direction, we cannot trust that momentum to continue.
Shiller is right to be worried about the market's awakening. Much of it isn't the kind of buying you want to see in a stable environment. Some reports indicate that speculative home buying has begun to heat up again. For example, house flipping is said to be regaining popularity. Even though home prices haven't begun rocketing upward, this might indicate that they would be even lower in some regions were it not for investors making speculative bets on real estate.