Yale University Economics Professor and Nobel Laureate Robert Shiller says the housing market is being driven by psychology, and the continually soaring prices may fuel yet another bubble.
“The price climb has been pretty steady since 2012. In a lot of cities, prices are up over 30%. I think people are cautiously optimistic,” Shiller, co-creator of the S&P/Case Shiller Index, told Yahoo Finance
’s Seana Smith.
“It’s not bubble territory yet, but bubbles are always a possibility,” said Shiller. “Right now we’re sitting where we were in 2003, and that developed over the next three years into quite a bubble.” In 2006, there were more than 1.2 million foreclosure filings, a rate of one foreclosure filing for every 92 U.S. households nationwide, Yahoo Finance reported.
“These markets, I think, are substantially driven by psychology,” Shiller said during an interview with Fox Business Network.
“And the psychology now is a little bit hard to interpret. Note that the cities with the biggest price increases are successful tech, entrepreneurial cities in many cases. So maybe people kind of believe in these markets as their salvation or their hope.”
But he said interest in home owning is beginning to wane in the U.S.
“People aren’t as impressed by homes anymore after they saw how they collapsed in price with the financial crisis,” he told FBN. “So it’s not such a clear case. I don’t think people are as impressed by big McMansions anymore as they used to be.”
But he explained he believes a home is still a good asset to have.
“The other thing about housing is that if you put yourself into a mortgage and you pay it off, you’re putting yourself into a saving program. A lot of people don’t save outside of some kind of a discipline device like that. So in that sense housing is a good investment,” he told FBN.
Shiller said that he’s concerned about recent volatility and “spectacular drops” in U.S. stocks and overseas markets, warning that further weakness could lead to a loss of confidence and cause investors to develop a “wait-and-see attitude,” Yahoo Finance reported.
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