Nobel winning economist Robert Shiller warns that the U.S. is in the third-largest housing boom in its history.
"We are, once again, experiencing one of the greatest housing booms in United States history," Shiller wrote recently in his New York Times column.
The professor of economics at Yale University said, on average, a house that sold for, say, $200,000 in 2012 would bring over $300,000 in September.
According to Shiller, this is the third highest national housing price rise in real terms since 1913, behind only the explosive run-up in prices from February 1997 to October 2006, which led to the financial crisis of a decade ago, and one from 1942 to 1947, connected with World War II and the great postwar Baby Boom.
“How long this will last and where it is heading next are impossible to know now,” Shiller said.
“Booms and busts are rooted in popular narratives with complex social-psychological roots,” he said.
“Today, signs of weakness in the housing market are being taken by some as a signal that the prices of single-family homes may fall soon, as they did sharply after 2006. The leading indicators, which include building permits and sales of both existing and new homes, have all been declining in recent months,” he said.
“It can’t go on forever, of course. But when it will end isn’t knowable. The data can’t tell us when prices will level off, or whether they will plunge catastrophically. All we do know is that prices have been roaring higher at a speed rarely seen in American history.”
Meanwhile, U.S. homebuilding rose in October amid a rebound in multi-family housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher. Reuters explained.
Other details of the report published by the Commerce Department last month were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5 percent to a seasonally adjusted annual rate of 1.228 million units last month.
Data for September was revised to show starts dropping to a rate of 1.210 million units instead of the previously reported pace of 1.201 million units.
Building permits slipped 0.6 percent to a rate of 1.263 million units in October. Economists polled by Reuters had forecast housing starts rising to a pace of 1.225 million units last month.
The housing market is being hobbled by rising borrowing costs as well as land and labor shortages, which have led to tight inventories and higher house prices. This is making home buying unaffordable for many workers as wage growth has lagged.
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