The bottom of the housing market is nowhere in sight, says Yale economist Robert Shiller.
(Associated Press)
NEW YORK - The US housing market's skid is nowhere near over and could last another five or even 10 years, says one of the most-watched housing economists.
Robert Shiller, a Yale University economist and codeveloper of Standard & Poor's S&P/Case-Shiller Home Price indexes, said declines in home values in the most vulnerable markets could double the losses recorded thus far.
What's more, Shiller, who is also cofounder and chief economist of the financial firm MacroMarkets LLC, said predictions for a bottom within the next year or so are probably wrong, with price declines in 2008 possibly worse than those seen this year.
"There is a probability of a continuing decline for a period of years, bringing prices in many cities down in the 10s of percent," Shiller said.
"The bottom is hard to predict," he said. "I do not see it imminent, and it could be five or 10 years, too."
Shiller is famous as author of the best-selling book "Irrational Exuberance," which sounded alarms about overblown stock market valuations just before the dot-com bubble burst in early 2000. More recently, he has been a leading voice of worry about what had been a red-hot residential real estate market until 2005, saying the market for houses had become infected with "an investor psychology."
"The housing situation that we got in is unique in history because there was an investor psychology that developed that was stronger than we have ever seen before," Shiller said. "We have seen housing bubbles many times in history, but they have been much more local than this one."
Areas most vulnerable to home depreciation are those that rose the most during the market's heyday, plus those at the center of the crisis in the subprime mortgage market, Shiller said. California and Florida are high on this list.
The index he developed with Wellesley College economist Karl Case has become Wall Street's preferred gauge of home prices.
Compared with the Office of Federal Housing Enterprise Oversight index, the S&P/Case-Shiller index includes homes financed with a broader range of loans, including subprime and jumbo mortgages. The government index only measures homes bought with so-called conforming mortgages, or those permitted to be purchased by
The S&P/Case-Shiller Home Price indexes showed further declines in the prices of existing single-family homes in August, marking the eighth straight month of negative annual returns and the 21st of decelerating returns.
The 10-City composite index's annual decline of 5.0 percent in August was the biggest monthly drop since June 1991. The biggest on record was an annual decline of 6.3 percent in April 1991.
In August, the 20-City composite had an annual decline of 4.4 percent.
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