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Robert Shiller: Housing Market Is ‘Great Unknown’ in Long Run

By Dan Weil   |   Tuesday, 19 Mar 2013 08:02 AM

The housing market’s recent rebound has turned many people bullish on the sector, but Yale economist Robert Shiller urges caution.

“Like any other speculative market, the housing market is hard to predict,” he tells Yahoo. “In the short run, I think we’ll go up for some months. But to go out a year, or people want to know 10 years out, it’s really a great unknown.”

The S&P/Case-Shiller Index of home prices in 20 major cities rose 6.8 percent in December from a year earlier, the largest gain in six years.

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But over the last 50 years, home prices have become more volatile, as homes turn into “more of a speculative asset,” he explains.

“People shouldn’t assume the housing market is off to the races and you’re going to regret it if you don’t go in,” Shiller notes.

"[For] the country as a whole it’s rather unlikely that we’ll have another boom like the one we recently had because that's such a rare and unusual event. … Prices could well go down. It’s a risk.”

Shiller calls the housing market “very abnormal” because the government underwrites most mortgages and there is a mortgage interest reduction. However, taxpayers could revolt and this support might disappear, along with rising home prices.

From an investment perspective, it actually makes more sense to rent your home, so that you can create a diversified portfolio with your investment capital, Shiller maintains. “You can even include real estate [in your portfolio],” including real estate investment trusts, he adds.

Others sound more bullish than Shiller.

“Housing has definitely improved,” Sean Incremona, senior economist at 4Cast, tells Bloomberg. “There’s progress and it looks to be sustainable. Cheap financing is definitely helping. We can thank the Fed for that.”

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