Robert Shiller: Nobody is Predicting Back to the Races

Case-Shiller Index co-author Robert Shiller spoke with FBN’s Connell McShane about his predictions for the future of the housing market and about his guess that the next bubble will be in farmland. Shiller said that in surveying professional forecasters, “median expectation is for flat to slightly declining until 2012,” and that “nobody is predicting back to the races.” He also spoke about how his view on housing has changed recently, saying that, “We’ve seen a major financial shock and it’s the kind of thing that could change public attitudes for a long time.” Excerpts from the interview can be found below, courtesy of Fox Business Networks.

On predictions for the future of the housing market:
“My firm, Macro Markets, does a survey of professional forecasters and median expectation is for flat to slightly declining until 2012 and then modest recovery. Nobody is predicting back to the races. Some are still predicting big drops, 10-15% in the next 5 years. I tend to weigh myself on the more pessimistic side.”

On how his view of housing has changed as of recent:
“We’ve seen a major financial shock and it’s the kind of thing that could change public attitudes for a long time. I compare it to the Japanese experience after their housing bubble burst at the end of the 1980s and they had almost 20 years of urban land price decline since then and they’re still going down. I don’t know that it would be that bad, but it’s an interesting example to look at because this was such a big shock that it changes the way we think and changes our ideas about housing as an investment, about home ownership and changes the way Congress is looking at supporting the housing market through Fannie and Freddie, FHA, and mortgage interest deduction. All of these things are in balance right now. It’s very hard to forecast because there are so many things that might change.”

On his prediction for the next bubble to be farmland:
“We have already seen a boom in farmland prices that matched the housing boom, but they didn’t bust like housing prices did; they only went down something like 5%. It’s different because they aren’t building any more farmland. They built a huge supply of houses during the boom and flooded the market. The latest news from the Midwest U.S. and the UK is showing booming farmland prices. My theory is that these markets are very psychological and they’re are influenced by circumstances, like the rising food prices, the trouble in the Middle East, and the rising oil prices, and these might create a mindset that’s favorable to a continuation of the bubble we have been seeing in farm prices.”

On if there’s any optimism in his outlook on housing:
“Seasonally adjusted, our indices are only down two-tenths of 1% this month. And normally in winter the home prices are weak anyway.”

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