Robert Shiller Sees Potential Double Dip For Real Estate Market

The real estate market is bumping along the bottom according to many of the experts. We are all watching this carefully as a true bottom means that investors and buyers will be coming back and we will have a healthy market again.

I think we all are hoping for a true bottom as it means confidence will be restored.

But disconcerting news is coming from Robert Shiller, famed real estate analyst, that he thinks that we may be facing a double dip. Unfortunately, I agree with him.

One thing we forget very quickly is the housing market has been largely subsidized by the government interventions in the market. From low cost borrowing due to the Federal Reserves purchasing of mortgages to home buyer subsidies, we have seen an unprecedented infusion of taxpayer money into our industry.

Once that spigot stops we have to recalibrate what the market will be doing and if the prices are realistic.

Here is Robert Shiller’s interview discussing these issues:

You said on Bloomberg Television yesterday that there is a 50-50 chance of a double dip in housing.
I am really going out on a limb to say it’s as high as 50-50. Double dips are rare. You know, I have a forecasting model that I used to use years ago when we were doing forecasts for The Wall Street Journal in the late 1990s, and that model emphasized momentum before anything else. When prices go up, they tend to go up for years. That’s history. Whereas if they start going down, they’ll go down for years. We saw home prices decline between 2006 and 2009—three years of decline. And now that [the market is trending] up, you know, it’s perfectly plausible to think we’ll have three years or more of increases. But I’m not so sure. We don’t know how much of this is transitory because of the government support. We’re in such an unusual economy now that [a double dip] has substantial probability.

You’ve said that 90% of the housing market is supported by the government.
Well, it’s 80% or 90%. Really almost the whole market now is government. And we know this can’t last.

And that means prices are being artificially inflated?
It seems to. Government support is especially prominent in sales of existing homes, which shot up to over 6 million on an annual rate in November 2009, the month that the home buyer tax credit initially was supposed to expire. Read the rest at BusinessWeek

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