Where To for Home Prices? Robert Shiller Weighs In
Recent Case-Shiller index numbers showed another decline in house prices -- prices are now at 2003 levels. At the same time, homebuilder stocks such as Lennar (NYS: LEN) , Pulte (NYS: PHM) , and DR Horton (NYS: DHI) are near 52-week highs. Lennar's CEO told analysts last week: "Our first-quarter results reflect another quarter of confirmation that both the housing market and the overall economy are stabilizing and that a very real trend is beginning to take shape."
Last week, Yale professor Robert Shiller -- author of the new Finance and the Good Society and co-creator of the S&P/Case-Shiller Home Price Indices, stopped by Motley Fool headquarters in Alexandria, Va. I interviewed Shiller to get his thoughts on the housing market, which you can watch in the video clip below. (You can find a transcript beneath the video clip.)
Brian Richards: Let's turn to housing for a second. So, the Case-Shiller Index numbers came out recently, and in January the numbers dipped a little bit more, and the prices are now at 2003 levels. Now at the same time, homebuilder stocks have, a slew of homebuilder stocks are at 52-week highs, and this week Lennar's CEO said that their first-quarter results -- let me read the actual quote -- "reflect another quarter of confirmation that both the housing market and the overall economy are stabilizing and that a very real trend is beginning to take shape." What are the data telling you about the housing market?
Dr. Shiller: Well, our numbers are still going down, but our numbers we just released January, in the first few months of this year, there are positive signs, notably the National Association of Homebuilders Housing Market Index -- which is based on a survey of builders -- shows that builders are seeing signs of optimism. Although, the very latest number in February was just flat, so it's not uniformally good. Things seem to be weakening a little bit in the latest month or so. But I find it very difficult to predict home prices right now.
Home building is rather different, by the way. Homebuilders are not bothered by the fact that in certain regions, homes are below construction costs. They just don't build there. All they need are some places where homes are selling for above construction costs. That's really not the same market.
Will this market pick up? I tend to take a different perspective. I keep getting asked by reporters, "Is this the bottom? Is this the turning point?" And I'm wondering what they're asking about. It sounds implicit in their question that they think that there's going to be a day soon and then it's going to zoom up again.
Richards: You're telling us it's not like that.
Shiller: On my website, you can find I have my index of home prices back to 1890, and it looks like this recent boom and bust is unique. It hasn't happened at such magnitude on a national scale before. We've had other examples of famous booms, but they're regional, not national. The question is: What happened after those? The most famous boom before this one is the Florida land boom that peaked in 1926. That was three years before 1929, and think of it as part of the same Depression phenomenon that followed, but we can't prove that.
So, Florida, the strangest thing happened. People started to think, the story was: Well, the automobile has come in, and now everybody can drive down to Florida and spend the winter down there and then drive back home. So everybody wants to go to Florida, and they're running out of land. You're not going to be able to buy there before long. And prices got really high, and then they crashed. And then, do you know how long it took for Florida to have another boom? They had some little booms in the '70s, but the really big Florida boom came after 2000, so it was like 80 years later, OK?
Los Angeles had a great boom in the 1880s. Do you know how long it took for them to have another one after theirs crashed? It wasn't until the 1970s, so these things don't necessarily repeat, and so I don't see any reason to think that we're about to take; we might, I don't know. Bubbles are social epidemics, and are we primed for another one now? I don't see it, but it could happen, but I don't see it.
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