Nobel Economist Robert Shiller Pessimistic on Housing.

10 Replies

Jump to latestLatest
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    12y

    Patrick,

    Has Robert Shiller ever been optimistic on the U.S. housing market? There are times to be a bull, and there are times to be a bear. Unfortunately, Robert Shiller makes money by being a perma-bear. Had we listened to him in 2009-2012, we would have missed an opportunity once in a lifetime.

    0Reply
  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 384 posts · 434 votes
    12y

    "Real Estate is always local" (So it's difficult if not impossible to determine national trends and predict the future)

    I think the most telling portion of the interview is that 1) no one knows what is going to happen...yes there have been sigificant gains in specific markets that are braggable but we don't know if it is sustained or not.

    2) Shiller was very open to rental- as a business model- is sustainable and growing. He agrees that the rental of SFH's will continue to be a good option for many families.

    Does anyone have a good link to the Shiller reference that "Housing has not appreciated in 100 years 1890-1990"? I understand he is arguing that new housing efficiencies and technologies will make new housing something that is always in premium demand.

    HOWEVER- he literally compared it to buying new cars. I fully agree there will always be people who buy new $40k cars, but at the same time there will always be people who want $15k cars and $5k cars...it depends on the individual. So there will be people buying new houses for $200/sqft.

    My business model has been buying and renovating 60yr old houses as rentals...for $15 a sqft. You can't build anything close to that price, and I rent them for $7 a sqft per year (I'm exprapolating, of course I rent my houses for a monthly rent).

    Conclusion is Shiller is making an arguement that people shouldn't speculate in real estate...I fully agree. Those of us who are buying on today's cashflow and are buying at some super discounts, we are also buying LOCALLY so national trends are largely irrelevant.

    As to the future, no one know and no one will, till it happens. Those that predicted right will be the next to be interviewed! Those of us who are buy-and-hold will look up from our properties and listen disinterestedly as we are not the nation nor the trend.

    [email protected]419-410-3836
    LaPlante Real Estate
    WebsiteView Page
    0Reply
  • Patrick C.
    OP
    Investor · Orinda, CA · Member since 2013 · 20 posts · 2 votes
    12y

    Thanks for your replies. I thought it would be a provocative and interesting subject to bring up since Shiller just won the Nobel Prize for Economics.

    I am a buy-and-hold real estate investor, too. That interview aired in Feb. Housing prices as measured by the Cash-Shiller Composite continued to perform quite well after that.

    0Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    12y

    Patrick,

    Thanks for posting to stir up some debate. However, real estate is very local. It's important to understand your area and monitor the economic, migration, housing affordability index (HAI), housing inventory, job creation, trends of tiers of the market, etc., and invest based on the data.

    In 1996 Robert Shiller said the stock market was irrational. Guess what, they kept going up and up and up and finally topped out in March 2000. Had people listened to him in 1996, they would have missed out on one of the greatest stock market run up in history.

    Take California for example. History indicated that when the HAI reaches 40%, we are at or close to the bottom of the housing market. When HAI is approaching 17%, we are at the top of the market. In the wake of the recent mortgage meltdown and thanks to the low interest rate, HAI in California reached 51%. With the recent 30% YoY price increase and a 1% spike in interest rate, our HAI is currently at 36%, which is equivalent to 1999. Do we have more room to go up from here? If history is any indication, sure. If the market decides to make a U turn and go down from here, we won't see much of a drop in home prices.

    Regardless if this economic recovery is real or Fed policy driven, we can't argue with history. As much as understand all of the parameters, the timing of your purchase and exit is the most critical.

    Just my 2 cents.

    0Reply
  • Xing Zhu
    Durham, NC · Member since 2012 · 498 posts · 48 votes
    12y

    Cash-Shiller Index has no value for investment. John Paulson made money in housing prediction when it was going down and when it rebounded, but not Shiller. In the Spring of last year, Shiller insisted that the bottom was still a few years away. As far as his prediction went, I'd say he had no more than 50/50 chances of being right.

    0Reply
  • Tom Bujnowski
    Investor · Tinley Park, IL · Member since 2008 · 65 posts · 27 votes
    12y

    I agree with Minh. We need to be EXPERTS in our area. I just listened to an interview Waren Buffet gave in India 2 years ago. He makes investment decisons by detaching from the opinion of others. He looks at the facts - works his numbers - and if it makes sense - he JUMPS on it.

    We need to know OUR market like the back of our hands. And leave EMOTION out of our buying decisions

    And say Next - and go to the next opportunity!!

    0Reply
  • Thierry Van Roy
    Maastricht, The Netherlands · Member since 2013 · 131 posts · 18 votes
    12y

    His investing "philosophy" (if you can call it that) is more fuzzy than the current market, but his forecasts on the short term are of value. That said, he's brought nothing new to the table as far as the current housing market goes. Stating the obvious by not lying outright, like government and banks tend to do, well bravo.

    As for the idea of houses improving, that's based on the economy improving more than the actual technological advance. So his story is contradictory even.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Just remember, all real estate is local. If others look to national trends and get out in your area, that's probably the time to get in. :)

    0Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    12y

    Economists remind me of Meteorologists. They can be wrong 75% of the time & still keep their 'jobs'.

    When I was buying in the early 80's, @ 19% interest, an associate (PHD in Economics) berated me for my stupidity.

    This was the same guy who successively rolled outstanding car loan balances into the next loan of a high end piece of chrome (just for the status of a NEW vehicle).

    Today REI opportunities abound esp with 30yr term @ <5%.

    0Reply
  • Thierry Van Roy
    Maastricht, The Netherlands · Member since 2013 · 131 posts · 18 votes
    12y

    Well, that's another thing. Economics (I too have a degree in applied economics) are a "dismal science", as the book "What's the use of economics" explains. I guess the brick & mortar side of investing trumps the paper assets in the sense of scepticism. Just look at the amount of credibility people like Warner Buffet still hold.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free