BiggerPockets

Robert Shiller thinks we may be doing just that.

US Housing Market Could Be Facing Another Bubble: Shiller

The housing market, which already has been battered by the worst collapse since the Great Depression, could be setting itself for another bubble, well-known economist Robert Shiller told CNBC.

With home affordability at a 40-year high, there is "absolutley" a possibility that the housing market will face another bubble in the next five years, said Shiller, an economics professor at Yale, co-founder of MacroMarkets and co-developer of the monthly Case-Shiller home price index.

"The low interest rates, the affordability is leaning that way and the ratios are back down," Shiller said in a live interview. "I get glimmers of excitement among some people, but we still have a high inventory of unsold homes, and we still have a lot of weariness because of the recent experience."

Although the most recent Case-Shiller report showed that US home prices posted their first monthly increase in almost three years, the sector-and the economy-are still a long way from recovery, Shiller said. Another round of stimulus money and revival of the credit markets is the only way the economy will shake out of this rough patch, Shiller said.

"It's clearly not over yet," he said. "It's not obvious that people are really ready to spend again. That may take years to rekindle that normalcy."

With the exception of a government-injected stimulus, the Great Depression draws a strong corollary to today's market, and Shiller fears it will struggle through a similarly slow recovery, he said. Though the stock market doubled in 1933 and rallied for about four years, unemployment numbers continued to sag and the economy didn't return to prosperity.

"That's what I worry could happen," Shiller said. "We'll have a recovery and it will be exceptionally weak for years to come."

http://www.cnbc.com/id/32474763

The line that jumped out at me was "With home affordability at a 40-year high"

This with home ownership approaching a modern low? I don't remember exact statistics, but I believe US home ownership was around 70% at the peak a couple of years ago and may now be approaching 60% which we haven't seen for decades.

This must drive a strong rental market and maybe a housing boom when many of the "marginal 10%" become buyers again when lending loosens up.

We are absolutely setting ourselves up for another bubble. Not only do we have to worry about people default when inflation starts taking a toll on their interest rates, we also have to worry about the deals being closed right now with the loose lending guidelines.

I just had a lender tell me about a deal they closed last week where a first time buyer had only $433 to their name. They received gifts from both of their parents for the 3.5% down payment. Their FICO was only 645 and their DTI was 47%. This was enough to qualify for a government loan and the 7500 cash back. These people have no business owning a home and they will likely foreclose within months. The bubbles are not going to stop bursting until the government stops creating them.

I'm actually in the process of closing on a home that was a real bear to get to underwriting.

Mortgage companies are very strict right now.

Its one thing to write a article about speculation - its another thing entirely to be on the receiving end of scrutinized FHA purchases.

IMO - watch your market, pay attention to the inventory. There's a bubble bursting, but it's because there's a new wave of sub-prime loans coming due.

I put little stock in article writers that need filler space to make their print run quota.

To know if we are going to see another bubble, we need to understand the causes of the last bubble. Dr. Thomas Sowell has authored one of the first look-backs at the previous bubble called (i)The Housing Boom and Bust(/i). I heard him interviewed about it and he seems to have a good grasp of all the factors that contributed to our problems.

I have not yet received my copy, but having read some of his other works, I can strongly recommend him as an author who knows economics. This is not an ad for his book. I just think that the truth needs to get out there instead of all the finger pointing by politicians, who confounded the problem, but want to stay in office.

I'm interested to hear if anyone has read it yet or has some other suggestions for books, articles, web-sites or blogs.

Happy investing!!!

When the $8,000 First Time Buyer Tax Credit ends we're going to see a huge slow down in real estate sales. We're addicted to ridiculously low interest rates and government assistance.

Originally posted by Alan Barker

When the $8,000 First Time Buyer Tax Credit ends we're going to see a huge slow down in real estate sales. We're addicted to ridiculously low interest rates and government assistance.

Do you think the huge slow down will cause even lower interest rates?

I've come to the perspective that bubbles and bursts amongst numerous sectors are just going to be a regular part of our economy, at least for our lifetime.

The mass of people have moved from producers to consumers. People will spend 100k and eight years of their life on a degree and never spend 1 week and $50 learning how to plant food that the earth will grow for you for free. They are slaves to the cycles of buying and selling and by placing their personal value on the marketability of their skills - have converted their self worth to a commodity. Any commodity trader worth their salt never owns 100% in one commodity because it's a fact of life that one will go up while another is going down.

We've seen this before. We saw it at the dawn of the Industrial age when people were moving from farms to factories and becoming consumers rather than producers. What we're doing now is rapidly speeding up the effects of this shift in perspectives. We know the model to follow to profit from this because it was done before.