Robert Shiller: US houses are going down

Yale professor Robert Shiller says the US housing market “still hasn’t hit bottom”. He has a good record here, having developed the Case-Shiller index to track house-price trends and called the bubble of the 2000s. “I don’t see any reason to think that prices are going to start heading up dramatically now.”

Record low interest rates won’t boost housing, he says, claiming “the model hasn’t worked very well historically”. The problem is that “we’ve never had… a bubble… of this magnitude before”. As for house prices, the “big thing… is momentum. If it’s been going down, it will continue going down.”

This is bad news for the recovery, says Shiller. The housing wealth effect, where house prices encourage homeowners to spend, fell massively in the last five years. He calculates that every dollar spent on a new house creates $1.40 in economic activity, “but ownership is going down”.

The index scores US house prices at 130.39, below their 2006 high of 189.93, but above the 2000 100 level, meaning they could fall further. Prices are good value if you are looking for a place to live, says Shiller. But as an investment, real estate is “not a clever move”.