Yale’s Shiller Warns Of Prolonged Housing Slump
According to the New Year’s Eve edition of The Times (UK), Robert Shiller, Professor of Economics at Yale University, is predicting that U.S. home prices may decline for years. The co-founder of the S&P Case/Shiller house-price index said:
American real estate values have already lost around $1 trillion. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses…
Over the next five years, the futures contracts are pointing to losses of around 35 per cent in some areas, such as Florida, California and Las Vegas. There is a good chance that this housing recession will go on for years.
Professor Shiller explained how the U.S. housing bubble came to be:
This is a classic bubble scenario. A few years ago house prices got very
high, pushed up because of investor expectations. Americans have fuelled the myth that prices would never fall, that values could only go up. People believed the story.
The Times pointed out that until two years ago, each of the fifty states participated in the housing boom, where properties in some states, such as Arizona, California, Florida, and Nevada, doubled in price, “fuelled by cheap credit and lax lending practices to borrowers who ordinarily would not have been able to secure a mortgage.”
“Now there is a very real chance of a big recession,” according to Dr. Shiller.
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