A quickening recovery in home prices has Robert Shiller, the Yale professor who created the most-watched housing index, suggesting that the U.S. housing market could be on the road to recovery.
Home prices in major metro areas rose 1.4 percent in June from May, tripling the modest 0.5 percent increase of the month before. The previous, smaller increase was the first in almost three years.
Housing had declined by roughly 50 percent from its 2006 peak, according to the S&P/Case-Shiller Indices.
“It has been an impressive turnaround. This is a huge, sudden, upward swing,” Shiller told CNBC.
“I think it might represent a change in trend. The only doubts about it are that the market is rather abnormal now with all these foreclosure sales.”
“But the outlook has certainly changed with this data,” Shiller said.
Shiller warns that data can be deceiving, and that the markets do not yet believe that a big shift in house prices is imminent.
“I didn’t say we reached a bottom. I said that this is very suggestive of a major turning point,” Shiller pointed out. “We’ve seen other corrections like this that were reversed.”
Tellingly, the exchange-traded instrument created by Shiller to track home prices, MacroShares Major Metro Housing Up (UMM), continues to predict a slow slog out of the current slump, putting home prices up just 6 percent five years from now.
“That is not a huge recovery,” Shiller notes.
In addition, the overhang of foreclosures does not bode well, despite the short-term uptick on home sales.
“There’s a lot of problems out there. And I think there’s a real possibility we’re going to see some bad news, and it’s going to be a reversal again,” he warns.
In mid-July, Shiller told Moneynews.com that, although the housing market could be approaching a bottom, prices might remain in the “doldrums” for years to come as the United States remains in a “liquidity trap” comparable to the one it faced during the Great Depression.
Though stock market prices are valued fairly now, Shiller said, equities remain a “risky” investment because the United States has not turned the corner on its fiscal crisis. He warned that stock prices “could fall dramatically.”
Editor's Note: To see Dr. Shiller’s full video interview, Go Here Now.
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