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Nouriel Roubini's Global EconoMonitor

Bob Shiller is Sharply Shrill…and the Risks of a Housing-Led Systemic Financial Crisis

Bob Shiller is Sharply Shrill…Sorry for the poetic alliteration. As I guessed in my previous blog on a severe housing-led recession, Bob Shiller – my former colleague at Yale in the 1990s – is himself a proud member of the Shrill Order of the Reputable Reality-Based Eeyores, as his op-ed  – with Karl Case – on the WSJ today clear shows. He has been predicting a housing bust for quite a while now. Now wonder as the attached figure – showing real home prices for the 116 years – suggests: real home price have been stable – with long cyclical and structural swings but no long run trend – for the last 100 years or so. The major anomaly is the sharp spike in home prices in the last few years – a 83% increase from the start of the current boom in 1997 – that is totally out of line with the long run historical experience. Since fundamentals cannot explain this spike, it is clear that it was a bubble that was bound to burst, as it is happening now (real stock prices – in general and tech stocks in particular – had the same bubbly trend in the late 1990s and, as predicted again by Bob Shiller, they burst into a free fall in 2000-2001).

housingpricebubble.gif

Today Shillerlike Krugman last Friday – comes only one notch short of predicting a housing-led recession; he believes that there is a severe housing bust coming but he is not certain yet that it will provoke an economy wide recession. But he – like Krugman – is only one step away from that view. He indeed concludes his column by saying:

“Unfortunately, there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected. Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today. Listen hard and watch out.”

Two points are important here regarding the views in Shiller’s op-ed.

First, like me Shiller is concerned about the broader financial markets implications of the housing bust; I suggested in my previous blog that a housing bust may lead to a systemic banking and financial crisis; his intimations of “rising default and foreclosures, serious trouble in financial markets,” are consistent with my concerns.  The way I put it:

The scariest thing is that the gambling-for-redemption behavior and problems of WaMu are not the exception in the mortgage industry; they are instead the norm. There are good reasons to believe that this is indeed the norm as lending practices have become increasingly reckless in the go-go years of the housing bubble and credit boom.

 If this kind of behavior is – as likely – the norm, the coming housing bust may lead to a more severe financial and banking crisis than the S&L crisis of the 1980s. The recent increased financial problems of H&R Block and other sub-prime lending institutions may thus be the proverbial canary in the mine – or tip of the iceberg – and signal the more severe financial distress that many housing lenders will face when the current housing slump turns into a broader and uglier housing bust that will be associated with a broader economic recession. You can then have millions of households with falling wealth, reduced real incomes and lost jobs being unable to service their mortgages and defaulting on them; mortgage delinquencies and foreclosures sharply rising; the beginning of a credit crunch as lending standards are suddenly and sharply tightened with the increased probability of defaults; and finally mortgage lending institutions – with increased losses and saddled with foreclosed properties whose value is falling and that are worth much less than the initial mortgages –  that increasingly experience financial distress and risk going bust.

One cannot even exclude systemic risk consequences if the housing bust combined with a recession leads to a bust of the mortgage backed securities (MBS) market and triggers severe losses for the two huge GSEs, Fannie Mae and Freddie Mac. Then, the ugly scenario that Greenspan worried about may come true: the implicit moral hazard coming from the activities of GSEs – that are formally private but that act as if they were large too-big-to-fail public institutions given the market perception that the US Treasury would bail them out in case of a systemic housing and financial distress – becomes explicit. Then, the implicit liabilities from implicit GSEs bailout-expectations lead to a financial and fiscal crisis. If this systemic risk scenario were to occur, the $200 billion fiscal cost to the US tax-payer of bailing-out and cleaning-up the S&Ls may look like spare change compared to the trillions of dollars of implicit liabilities that a more severe home lending industry financial crisis and a GSEs crisis would lead to.

The main, still unexplored issue, is where the risk from mortgages is concentrated: among the sub-prime lenders (as i worried about and as the WSJ reports today; see also this Dow Jones story) or among commercial banks or among hedge funds and other financial intermediaries that purchased mortgage backed securities(MBSs) or among the GSEs (Fannie and Freddie)? Commercial banks claims that they have transferred a lot of their mortgage risk to other financial intermediaries – such as asset managers, hedge funds or insurance companies – who purchased large amounts of MBSs. But banks have still lots of mortgages on their books and, on top of it they have tons of consumer debt exposure (credit cards, auto loans, consumer credit) that may go really bad in a recession. If part of the housing risk has been off-loaded to hedge funds, the risk is not just of some of these hedge funds going bust but also their prime brokers (i.e. large investment banks) getting into trouble; counterparty risk will become serious once the hot potato of mortgage risk is pushed from one counterparty to the other. And finally, a large part of the housing risk is also in the hands of Fannie and Freddie. How much are the GSEs at risk is a complex issue that we will cover in a forthcoming RGE brief this week. For now, you can see the RGE coverage of the housing risks for the commercial banks, for the rest of the financial system and for the GSEs in three separate RGE Spotlight issues (here and here and here; these links require a free registration to the RGE Monito
r
).

Either way, a serious housing bust followed by an economy-wide recession implies serious financial risks for the entire financial system, not just risks for the real side of the economy. A systemic risk episode triggered by a housing bust cannot be ruled out as I discussed in detail in a recent blog of mine.

Second, Shiller confirms – as I discussed in detail before – that futures markets on housing are now predicting a 5% fall in home prices in 2007. But then he makes the argument that, based on the S&P/Shiller-Case home price index, prices have peaked but not fallen yet.

“According to the Standard & Poor’s/Case-Shiller Composite Home Price Index, based on 10 major metro areas, housing inflation reached 20.4% in the 12 months ending in July 2004. Now, the latest numbers announced yesterday show only an 8.2% increase in the 12 months ending June 2006, and most of that increase was in 2005. Six of the 10 cities actually fell between May and June. By simple extrapolation, if housing price changes continue to decline as they have, inflation will turn into deflation, and 12-month price changes might be squarely in negative territory by some time in 2007.”

The 8.2% increase in June – on a year-on-year basis – is quite different from the National Association of Realtors data that show – for July 2006 – a year on year increase of only 0.9% for existing homes and 0.3% for new homes. Those NAR data also show that, in three out of four regions- the exception being the South – home prices are actually falling already. Relative to a year ago housing prices have already fallen in the North East (-2.1%), Mid-West (-0.6%) and the West (-0.3%). So, not only housing prices are falling in the bubbly two coasts; they are also starting to fall in the Mid-West, the region where the conventional wisdom was that there was no housing bubble. The fact that home prices are falling in the Mid-West where prices did not skyrocket in the bubble years is a scary signal of how much the housing bust and glut in supply will lead to a sharp fall in housing prices in the quarters ahead with painful effects on the wealth, and thus consumption, of households. 

The current – current not future – fall in home prices is worse than the official data suggest for three additional reasons:

  1. Home prices are already sharply falling in many formerly bubbly cities, especially those in bubble regions of the US;
  2. as the NYT recently reported, home sellers are now providing a variety of financial benefits (seller paid closing costs, buyer-side realtor bonuses, and seller subsidized mortgages, even $30K swimming pools free) that effectively reduce the price of a sold home, even if the headline price is officially not reduced: “The typical incentive package from a home builder consists of upgrades to the house — granite countertops instead of humdrum tiles, stainless-steel refrigerators and stoves instead of plain white models and wood blinds instead of plastic. At the extremes, some have thrown in $30,000 swimming pools.” Estimates of this effective price cut – via side benefits to buyers – are in the 3% to 8% range. So, while officially median home prices are “only flat” relative to a year ago, the effective median price has already sharply fallen;
  3. if you were to control for CPI price inflation – now running above 4% –  home prices are even lower in real terms relative to their nominal value.  More ominously, futures contracts for home prices predict a 5% fall in home prices in 2007, and even a larger percentage fall in a number of key cities.

It is thus now clear that, for the first time since the Great Depression, even actual – i.e. not fudged by side incentives and subsidies – median home prices are already falling – on a year on year basis – and will be falling even more in the next months; the typical lag in the adjustment in home prices to a gap between supply and demand and the massive unprecedented increase in inventories of unsold homes will be the trigger for this home price bust. On a year on year basis, real home price may fall as much as 10% or even more in the next 12 months, even more than currently predicted by the illiquid futures market.

In conclusion, a housing hard landing will lead to a sharp and severe recession: the fall in real residential investment and its effects on aggregate demand will be larger than the 2000-2001 tech bust; the employment effects of the housing bust will be larger than the tech bust as – directly or indirectly – 30% of recent employment growth has been housing-related; the wealth effects of a bust in housing will be large and larger than those of the tech stock bust as homeownership is widespread and housing is a significant fraction of households’ wealth; a housing-related recession can occur if triggered by a housing bubble bursting in the same way in which the bursting of the tech bubble in 2000 led to a recession in 2001; households are now at a tipping point and in a foul mood (as evidenced by the sharply falling consumer confidence level) being buffeted by slumping housing, high and rising oil and energy prices and the delayed effects of rising policy rates while experiencing falling real wages, negative savings and high and rising debt and debt servicing ratios; and Fed attempts to prevent the recessions via a cut in interest rate in the fall or winter will fail to avoid the recession as an unprecedented glut of housing and of consumer durables – starting with cars, home appliances and furniture – will make the demand for housing and durables insensitive to changes in short term and long term interest rates; the housing bust may lead to a banking and financial crisis that may be more acute – and cause a more severe credit crunch – than the S&L crisis of the 1980s and early 1990s that led to the 1990-1991 recession.

Finally, for continued coverage of the developments in housing, check out the RGE Monitor and our page on Housing Bubble and Bust.  We cover three possible scenarios about the housing slump and the US economy in “Scenario 1: U.S. Housing Has Soft Landing, and Growth Continues,” “Scenario 2: U.S. Housing Tanks, But the Rest of the Economy Has a Soft Landing” and “Scenario 3: U.S. Housing Tanks, the Economy Lands Hard in a Recession.”     Also we do a tour of the world’s housing markets. Our neighbor to the north is dealing with a regional housing bubble; see “How Vulnerable is Canada’s Western Housing Boom?”  Turkey’s housing sector was booming up until June; see “How Long Will the Real Estate Sector Drive Economic Growth in Turkey?”  India might be seeing a slowdown in its property market; see “Is the Indian Property Sector Boom Deflating?”  Also look in on housing markets and bubbles in Latin America, China, Spain, the UK and Australia.  

27 Responses to “Bob Shiller is Sharply Shrill…and the Risks of a Housing-Led Systemic Financial Crisis”

WAWAWAAugust 30th, 2006 at 10:30 am

The whole country has been “high” on crack cocaine.  My observation is that during last five years everyone (Fed. Gov., U.S. Congress and general population) have been borrowing heavily and spending recklessly and thoughtlessly. People have been living as if they were millionaires, I see it among my family members, co-workers and friends. Dr. R. is right, when reality prevails, it is going to be painful and long correction process.  

WAWAWAAugust 30th, 2006 at 10:30 am

The whole country has been “high” on crack cocaine.  My observation is that during last five years everyone (Fed. Gov., U.S. Congress and general population) have been borrowing heavily and spending recklessly and thoughtlessly. People have been living as if they were millionaires, I see it among my family members, co-workers and friends. Dr. R. is right, when reality prevails, it is going to be painful and long correction process.  

CharlieAugust 30th, 2006 at 10:48 am

Good post. I generally agree with you, but my hunch is things won’t be as bad as you expect. I don’t think you can compare the run up in home prices to the NASDAQ in 2000. Companies that aren’t and will never be profitable as basically worthless. Well maybe a few dollars can be had by selling off old servers. Houses are rarely worthless. I think the only way houses drop 70% is if the unemployment rate hits 50%.  From looking at Shillers chart, it looks like homes went from about 70 in the early 40’s to 115 in the early 50’s. A rise of about 39%. The most recent rise went from about 110 to 200. A rise of about 82%. We’re in uncharted territory. I don’t know where Shiller gets his numbers, but have inflation adjusted prices really gone up by 82% in the US as a whole? I think this is true in some markets, but I don’t think this occurred in the entire US. Maybe my impression is wrong. My parents house doubled in value in the 1970’s and doubled again in the 1980’s and by 2000, had doubled again. My personal impression is the recent housing boom isn’t that much different than ones in the past.

John RyskampAugust 30th, 2006 at 11:07 am

Well, we’re getting Prof. Roubini to the point where he may say that we are already in a recession. But why the hesitation? He should draw the conclusion of his statement that home prices are already falling. If that is true, it has an impact economy-wide. What is that impact? Remember that a depression is defined as a 10% decline in GDP. Where is his chart forecasting GDP? If we are in a recession, GDP has already fallen.   And, of course, the most sensitive economic statistic of all. What is his month-to-month prediction of the home mortgage delinquency rate (in all the categories: fixed, variable rate and so on) over the next two years?  I’m afraid he’s still rather “establishment.” He still doesn’t want to get into the nitty-gritty to tell us where we are and where we’re going.

ewulfAugust 30th, 2006 at 11:10 am

a.-While I do agreee with the fundamentals of Professor Roubini´s analysis for housing markets fall,it is still a matter of discussion the final impact on current downward GDP adjustment path.First of all,because of its nature (Nontradable production = nontradable consumption),Nontradable sectors adjustment impact ,are strongly influenced by the markets flexibility to absorb such correction and the reallocation of resources implied by it.The greater market flexibility the softer should be the adjustment path.USA economy has traditionally considered to be a very flexible economy,more so these days with wages levels moving below productivity trends ,making feasible to invest in tradable sectors linked to export. Coupled with the markets flexibility,it is the set of new investment opportunities availables in tradable sectors, which can compensate the negative effects of falling housing consumption.Of course ,time will say something about this possibility.- b.- It is a serious threaths to the systemic risk level,rightly mentioned by Professor Roubini, the financial and banks spill over effects of default on housing borrowing. This is a very scary scenario,however it is also depending upon the overall level of systemic risk currently on the banking system.If it is high ,even a flexible economy will have trouble to cope with such a financial mess .If It it is rather low , markets flexibility would be a sufficient condition to overcome such housing default behaviour. (Recent data shows healthy balance sheets of banks) c.- It is important to keep in mind that the current markets adjustment has been expected, aulthough it has not been possible to know in advance and precisely its magnitude.Markets are all going through a correction process,some of them deeeper,some of them lighter(in this later case,given current profit levels) .Therefore ,the overall effect on GDP adjustment path,will depends which adjustment forces will be stronger.Sure all of aggregate demand variables are moving downward (cars ,housing ,home apliances demands),but to what extent that movement is either a correction or a trend?. Recent GDP data (third quarter growth was 2.9%) seems to suggets that there a fair chance that markets are following an adjustment process, even strong like in the housing markets,but not strong enough to make a medium term trend,to push the economy to a hard landing recession.On the other hand, it is the effect of supply side factors(productivity growth to confront inflationary pressures )which copupled with demand adjustment which will determine the final GDp path.Hystorical data shows that in 9/10 recessions (1947 up to 2001)productivity have fallen,at an average rate of 1.7% (Romer 2006).This is quite the oppsoite to what it has been happening so far.So, It still time to watch the news developments.- Finally, I congratulate Professor Roubini to assemble ,usually sophisticated models,in such way to make this discussion possible to a wider audience.  c.-

Henkel GarcíaAugust 30th, 2006 at 11:39 am

I’ve been searching information about a possible U.S. recession. I’m not from United States, actually, I’m living in Venezuela, but I’m very interested in U.S economy as it is, in my view, an engine for the world economy. In that search I’ve found a very interesting information about bubbles, more specifically “Asset Bubbles”, and your blog has done an excellent job in order to clarify my view. My knowledge guide me to think that stock markets could predict and anticipate recessions, in this case they have been reluctant to face the truth. Why do you think it is happening???

AnonymousAugust 30th, 2006 at 12:21 pm

This whole discussion reminds me of the tech bust and I recall a company, CMGI, which was big in Boston where I was working at the time. It was baffling to see this company’s stock rise when I could not figure out what they actually produced, other than a lot of managment speak and buying out of other similar companies. How could people have been so deluded? It’s instructive to look at their 10 year chart today:   http://money.cnn.com/quote/quote.html?pg=qu&sid=5599&symb=CMGI&time=all&uf=0  While I think there is much less delusion in the real estate market, I agree that the aggregate effect will be more serious. There is too much emphasis on viewing a house as an investment, rather than a place to live in and enjoy. It has also entailed a lot of unnecessary remodelling, redecorating, and expanding. I think the quality (and appearence) of most new construction is appalling,  something that will come to light in a few years when it starts to deteriorate.  JD  

GuestAugust 30th, 2006 at 12:31 pm

Also, the Realtor’s commission (6%) is too high. I could  understand that if you needed a Master’s degree to be a real estate agent, but you don’t. I think the commission is more like 3% in Canada. It would be great to see some changes in the real estate industry come out of all this, to stop their monopoly and predatory behavior. I’d love to see a Web 2.0 company that would help individuals to sell their own homes.   JD JD

CornhuskerAugust 30th, 2006 at 1:37 pm

Zillow is a joke…I just pulled up a house two blocks from where I live. The house I found on Zillow is 2900 square feet on two acres (worth about $300K right now) and Zillow has it listed for $89K. Give me a break…that stupid website doesn’t accurately list housing pricing.

GuestAugust 30th, 2006 at 1:41 pm

I find Zillow to be quite accurate re houses in my neighborhood. Maybe the house you looked at isn’t worth what you think it is.

MrkAugust 30th, 2006 at 1:42 pm

The increase in the price of housing for the past 100 years is no greater proportionatley than the increase of a loaf of bread during that same time. In fact the price of a loaf of bread everything being equal has actually increase more. I had just completed a thesis on this very topic submitted last april 06. We see sometimes what we want to see. Housing today is actually a bargain although not that it was 10 years ago before this last move started. good luck and best regards to everyone. Although i disagree with this blog at times, it is well written and i enjoy it.

GuestAugust 30th, 2006 at 2:33 pm

MRK, just how do you see housing as a bargain? How can you look at that chart (and all the information presented here and on other blogs) and think that? Housing is not a bargain – maybe it is in certain areas, like Texas or certain Midwestern states, but you obviously haven’t been to the areas of the country where housing has appreciated 300% in just a few years. Come to NY – go look for a starter house in a nice suburb, then compute your costs and taxes – we’re talking over 5K a month in costs for something decent. And no, everyone in NY does NOT make millions a year, contrary to popular belief.  The cheerleaders will keep cheering even when the score is 100-nothing against their team, I suppose.

nihoncassandra.blogspot.comAugust 30th, 2006 at 9:50 pm

Toronto Early 90s: Commercial Real Estate being dumped by banks was changing hands at perhaps 35 to 40c on the dollar of new construction cost, so desperate were Canadian lenders to get the “collateral” off their balance sheets. These were investment “home runs” forthose with the long view. Similar situation in France in the mid 90s resulting from a binge by insurance companies. Thailand in 1999 wasn’t much different if one was willing to stump up for an empty apartment building or nearly completed development. Japan only reached that point in 2001 or 2002 a full 10+ years after the asset bubble popped, though granted there were numerous structural SNAFUs upon puking. And the UK saw a major regurgitation from 89-94, with both prices & transaction volume getting creamed.   But there are lots of astute investors about, with dedicated capital for the purpose of…well…being astute. Some are policy investors. Many others are themselves principals, or agents for policy investors with license (and investment term structures) that allow them to act like principals with a long view. Much of this money is “ours” in one form or another – through pensions, insurance co’s, endowments of affiliated institutions, either directly or indirectly. They probably won’t be the ones to catch the falling knife (though someone has to eventually). Such investors didn’t start buying Tokyo real estate until the very late 90s simply because, though it was deflating (slowly), there wasn’t value there until that time. And it got cheaper still, and as it got cheaper and yields became attractive, money (& transaction volume) was there and picked up signalling the bottom.   I tend to think that a rapid merciless RTC-style clear-out of real estate collateral left by the thrift mess (like the Canadian cleansing metnioned above after) are superior to responses (like Japan) that try ameliorate but therefore elongate the bust in values. There are plenty of investors with funds to pick up the pieces from those that have wagered carelessly and lost, which happens even to the best like Canada’s Reichmann’s. And the quicker that point is reached, the quicker that confidence in future prices is restored, and thus normal transaction volume (and yes, investment) can be restored. Yet falling nominal prices are deeply unpopular with the polity – especially voters and influential creditors, and it seems likely that authorities will – against all better economic judgement – attempt to intervene in order to slow, stop, reverse nominal destruction, leading to a malaise that may be less severe (initially) though longer than it needs be.   The wild card is how isolated will this asset price destruction be? Will it un-tether credit spreads and asset prices in general, and cause a more meaningful capital dislocation event which is so severe that it removes investors/speculators ability to respond to lower prices? Though a lower probability event, I would be interested to hear from any Mortgage Market specialists that can detail for us, some capital market scenarios – particularly with respect to CMOs and their toxic leveraged tranches, mortgage CDOs & vanilla MBS workouts in the event of serious price destructrion (median falls > 25% in nominal terms over a short period). What are the potential knock-on affects? Are there federal agency disaster/contingency plans to respond to prevent large scale repossessions of primary residences?  

NourielAugust 30th, 2006 at 10:51 pm

nihoncassandra.blogspot.com: you make very valid points. The key issue is whether the housing bust will lead to a systemic risk via MBS, CDOs, CMOs, etc. in case home prices fall sharply, and default and deliquencies on mortgages rise sharply? I you get systemic effects there will be very few trying to grab the falling knife. And sub-prime lender are already under severe pressure…

GuestSeptember 1st, 2006 at 4:44 am

I agree with Dr. Roubini’s data (how can I even question it?) and some of the conclusions, but in practical matters, even if US Housing Values fall 5-10% on average over the next 12-18 months, i don’t think this necessarily means disaster. This implies that values fall ALOT in a few markets, but in most markets, values won’t fall at all, or minimal. I think this also implies that most families, the vast majority, and nearly all wealthy families, are not terribly hurt by such a scenario. If were were to lean on the well-worn crutch of 80/20, and say 20% of home-ownming families start having problems, how much of total disposable wealth is this? 5% maybe? And it’s not like that will go to zero, it just means that that amount is at risk, of, say, going down by, what, a third?  You see, I’m trying to establish a plausible amount of consumer spending (70% of the eocnomy) that is ‘at risk.’ And then what that would imply about overall econmic growth.

Steve CarlileSeptember 1st, 2006 at 10:19 am

I believe the articles warning of a systemic financial crisis need to be studied more closely. Additionally, more research should focus on how the margins of error in each interlocking economic system have been exceeded. Shiller’s conclusion written above and Dr Roubini’s 12 August blog warn of the cascading failures that can result when financial margins of error are exceeded.   It is not difficult to equate the economic situation to a series of electronic components that draw current, have resistance, inductance etc… . When these tolerances are exceeded in the power grid, we get cascading power blackouts such as 2003 power grid failure in the US northeast and Canada. Certain energy experts warned about the potential for such failures but were mostly ignored. It appears the same is happening here.

AlexSeptember 1st, 2006 at 11:51 am

Differnce between the Case-Shiller Index and the National Association of Realtors    The 8.2% increase in June – on a year-on-year basis – in the Case-Shiller Index is qualtity/mix adjusted I am almost sure, while the National Association of Realtors data (a year on year increase of only 0.9% for existing homes and 0.3% for new homes) is probably just a simple average of houses sold. This suggests that the decline in sales is more marked at the higher end of the home market, while the decline in sales has been less severe in the mid-lower end of the market. This would explain the differnce between the behaviour of the two indexes. This would also fit with the very negative outlook from Toll Brothers, a builder of luxury homes.

AlexSeptember 1st, 2006 at 11:51 am

Differnce between the Case-Shiller Index and the National Association of Realtors    The 8.2% increase in June – on a year-on-year basis – in the Case-Shiller Index is qualtity/mix adjusted I am almost sure, while the National Association of Realtors data (a year on year increase of only 0.9% for existing homes and 0.3% for new homes) is probably just a simple average of houses sold. This suggests that the decline in sales is more marked at the higher end of the home market, while the decline in sales has been less severe in the mid-lower end of the market. This would explain the differnce between the behaviour of the two indexes. This would also fit with the very negative outlook from Toll Brothers, a builder of luxury homes.

JMANSeptember 5th, 2006 at 8:30 pm

* HELP * When attempting to view this post (Bob Shiller is Sharply Shrill…) print preview slides off of the right side of the page, no matter what margins (landscape mode). Other blog posts preview correctly.

JMANSeptember 5th, 2006 at 8:30 pm

* HELP * When attempting to view this post (Bob Shiller is Sharply Shrill…) print preview slides off of the right side of the page, no matter what margins (landscape mode). Other blog posts preview correctly.

SManSeptember 7th, 2006 at 11:10 am

Is it also right to assume that the tech bust of 2000 negatively impacted many of the retirement and real savings of millions of Americans leaving them to fend for “themselves” in the future, however with the devaluing of property, inability to refi based on bubbling equity, and realization of the 3/1 or 5/1 ARM smacking you in a few years, that they will literally lose their roofs.

tom in japanSeptember 8th, 2006 at 12:41 am

front matter: I’m just a guy (a Dave Barry kind of guy) I recently discovered this site while following Klugman.  I don’t want to stir up the “All’s Doomed” atmosphere, but…. Has anyone considered the possiblity of a Economic Extintion Event? It seems like the aging society [and underfinanced pensions], heavily indebted government, housing bust, and peak oil are all aligning- concentrating their gravitational pull to bring the economy to its knees. The result would be a total wipeout. Our fiat currencies will hyper-inflate and then be replaced with something else. There will be much gnashing of teeth and slates will be wiped clean.  But, like I say, I’m just a guy who gets up every morning and goes to work. I’m thankful to have that. I don’t have a gun to protect myself from the resource rioters in the future. I haven’t moved my family to a cabin in the woods….  I would be interested in others thoughts — preferably thoughts of people who are more upbeat than myself. Prove me wrong 🙂

GuestSeptember 8th, 2006 at 3:26 am

Hey everybody, better start packing and move to another country. We Americans are in deep trouble  I have suitcases for sale at 80% off.

GuestSeptember 21st, 2006 at 9:37 am

First things first: The stock market most certainly did NOT do what Robert Schiller said it would do. Yes there was a serious correction beginning in March 2000, but the correction did not even come close to reaching the historical averages that Schiller called for. I’m too lazy to look the numbers up. The magnitude of Schiller’s error may well have been greater than the magnitude of the errors by the market cheeleaders like Kevin Phillips. The most bullish and most bearish were way off in their predictions.  Second, long term fundamentals look very good for housing. Demand side fundamentals are population and job growth, and both of these will be very strong in the US over the next 20 years. Couple this with asinine and NIMBYish restrictions of density on the supply side, and you are looking at a sellers market over the long term.   What is happening now, in the short term, is an imminently rational response to conditions of oversupply. There is no bubble, and it is not bursting.

GuestSeptember 25th, 2006 at 1:15 pm

“What is happening now, in the short term, is an imminently rational response to conditions of oversupply. There is no bubble, and it is not bursting.”  Where to begin responding to such rubbish? Have you ever been to the west coast–you know, California, western Washington? Seattle’s one big housing bubble–I live there, I know.

AdiOctober 11th, 2006 at 9:38 am

I think there is a similar boom in India as well. Real estate prices have skyrocketed in the last couple of years, over 60-70%. Though some of the price appreciation is due to an increase in average incomes and increase in demand due to real growth, it looks way too high to sustain when the global economy corrects down.