Robert Shiller, the Yale economist who helped create two housing indexes, thinks the US housing market will mimic Japan’s.
He reasons that home prices will stay down because the housing markets aren’t as efficient as people think. This from a recent article by Shiller in the New York Times:
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Imagine a young couple now renting an apartment. A few years ago, they were toying with the idea of buying a house, but seeing unemployment all around them and the turmoil in the housing market, they have changed their thinking: they have decided to remain renters. They may not revisit that decision for some years. It is settled in their minds for now.
On the other hand, an elderly couple who during the boom were holding out against selling their home and moving to a continuing-care retirement community have decided that it’s finally the time to do so. It may take them a year or two to sort through a lifetime of belongings and prepare for the move, but they may never revisit their decision again.
As a result, we will have a seller and no buyer, and there will be that much less demand relative to supply – and one more reason that prices may
continue to fall, or stagnate, in 2010 or 2011.
Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.
Shiller also argues that housing busts tend to last for a long time. Think Japan in the 1990s: the Japanese bust took home prices down every year for 15 years.
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