Thursday, April 24, 2008

House Prices May Fall More Than During 1930s: Economist

Source : The Business Times, April 24, 2008

(NEW HAVEN, Connecticut) An influential economist who long predicted the housing market bubble cautioned on Tuesday that the slump in the US housing market could cause prices to fall more than they did in the Great Depression, and bailouts will be needed so millions don't lose their homes.

Mr Shiller: 'It seems we have developed a speculative culture about housing that never existed on a national basis before.'

Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor's/Case- Shiller home price index, said there's a good chance housing prices will fall further than the 30 per cent drop in the historic depression of the 1930s. US home prices have dropped 15 per cent already since their peak in 2006, he said.

'I think there is a scenario that they could be down substantially more,' he said during a speech at the New Haven Lawn Club.

Mr Shiller's Standard & Poor's/Case-Shiller home price index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

Mr Shiller, who admitted he has a reputation for being bearish, said real estate cycles typically take years to correct. Home prices rose about 85 per cent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in US history, he said.

'Basically we're in uncharted territory,' Mr Shiller said. 'It seems we have developed a speculative culture about housing that never existed on a national basis before.'

Many people became convinced that housing prices would increase 10 per cent annually, a notion that Mr Shiller called crazy. -- AP

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