Yale University economist Robert Shiller released a book back in March 2000 titled Irrational Exuberance, which proclaimed that the stock market was a bubble. Soon afterward, the tech bubble burst. Then, in 2004, the Yale economics professor called attention to spiking house prices with a paper titled Is There a Bubble in the Housing Market? Finally, in 2007—just before U.S. home prices crashed—Shiller correctly predicted that house prices would soon crash.
Fast-forward to 2023, and Shiller is once again closely watching the U.S. housing market after its period of exuberance during the pandemic, which included a 43% jump in U.S. home prices measured by the Case-Shiller National Home Price Index—a single-family index that Shiller helped to build many decades ago.
Only this time around Shiller isn’t predicting a national home price crash—or a sustained boom. Instead, Shiller went on CNBC last week and seemed to suggest that national house prices would go sideways for a bit.
“The housing market is different than the stock market, it’s normally forecastable. It has been growing since 2012, it has been about 10 years of steady growth in home prices. But it may be coming to an end with this interest rate rising cycle,” Shiller said.
Throughout the course of the boom, Shiller thinks some exuberance entered into the housing market as homebuyers rushed to lock in 2% and 3% mortgage rates, which they knew wouldn’t last long.
“I think the fear of interest rate increases has influenced people’s thinking. It is not just the homeowners, it’s new buyers who wanted to get in before the interest rates went up even more. They wanted to lock in, so that’s been a positive influence on the market, but it’s coming to an end,” Shiller said.
Last summer, Shiller suggested to CNBC that the Pandemic Housing Boom could be replaced by a period of declining house prices. In August 2022, he said: “The Chicago Mercantile Exchange has a futures market for home prices…That’s in backwardation now; [home] prices are expected to fall by something a little over 10% by 2024 or 2025.”
While national house prices as measured by Case-Shiller did fall 5.1% between June 2022 and January 2023, they’ve since rebounded 2.8% through April.
However, last week Shiller hinted that recent national house price gains might just be a seasonal blimp.
“Part of what’s happening in the increase in home prices is just seasonal, it’s the summer and it’s typically going up in the summer,” Shiller said.
If Shiller is right and national house price gains this spring/summer are just “seasonal,” it could mean month-over-month price declines return later this year as the housing market enters into the seasonally slower fall/winter months.
“We’ll see, whether we get a soft landing [of the U.S. economy]. But it’s a possibility. I’m not panicking one way or another,” Shiller said.
