Yale Economist Robert Shiller is projecting a slower and declining real estate market in the coming year as the real estate industry has experienced one the of the biggest booms in history. The economist is the co author of the Case-Shiller real estate index and is considered to be one of the top voices in real estate analysis.
In justifying his pessimism, he pointed out that price increases have far out paced rises in construction costs, rents and income. In addition, inventory levels are up, as are interest rates and real estate holdings as a percentage of the gross national product.
All these metrics would indicate that prices are way overblown and due to slow. But that has not happened on a wide scale, though there has been recent weakness in some markets, including Boston and San Diego.
“Home prices lately have done something really remarkable,” said Shiller. “This is the biggest boom the United States has ever seen.”
The only other market the current one can be compared with, according to Shiller, is the boom following World War II when returning veterans got married, started families and bought homes. But that was a much more fundamental event, one driven by strong demand.
This latest one, says Shiller, is a speculative boom. “It’s an uncertain situation,” he says. “It looks like a down cycle that might continue down or it may bounce around. I will not make a forecast but this pattern suggests risk.” via CNN Money.
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