Shiller: It’s an Illusion to Think Your Home is a ‘Great Investment’

Wednesday, 18 Apr 2012 08:00 AM

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Yale economist Robert Shiller says thinking of your home as an investment that will go up in value is seriously unwise.

"There’s no guarantee that home prices are going to go up," Shiller told The Motley Fool. "I think we’ve gotten into an illusion about that ... and it created this spectacular bubble."

“We have to reflect now that we had a kind of crazy mind-set in the last couple of decades, and we have to get back to thinking like people used to think," he said. "Housing is a depreciating asset, goes out of style; it’s going to end up in the wrong place."

Editor's Note: Obama’s Economic ‘Fix’ is In . . .

“People will want to live somewhere else, so it’s not any automatic capital gain."

Inflation in the 1970s and 80s contributed to the belief that homes were moneymakers, says Shiller. For example, if five years ago your grandmother sold the home she bought in 1952 for 10 times what she paid for it, that sounds impressive.

However, consumer price inflation over that period means she didn’t really make any money off of it, Shiller points out. “And she was putting money into it year after year and maintaining it,” he says. (But) we forget that. It's that kind of bias.”

Business Week reports that U.S. consumer prices increased at a slower pace in March as the run-up in energy prices eased, supporting the view of some Federal Reserve policy makers that inflation will ebb.

Editor's Note: Obama’s Economic ‘Fix’ is In . . .





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