Is the U.S. Stuck in a Second Housing Slump?

The economy may be showing sings of new life but new data show a weak housing market. Ray Suarez talks to Yale University's Ron Shiller about the state of the U.S. housing picture.

Read the Full Transcript


    Finally tonight, is the United States stuck in a second housing slump?

    Ray Suarez has the story.


    The economy itself is continuing to show signs of a strengthening recovery, with stronger consumer spending and a pickup in hiring.

    But new data released today shows a weak housing market. The S&P-Case-Shiller home price index of 20 leading cities found that prices fell in January, for the sixth month in a row. The index is down nearly a third from its peak in 2006, before the housing bubble burst. And it's just 1 percent above its low in 2009.

    Some explanation of all of this now from Robert Shiller of the aforementioned Case-Shiller index. He's a professor of economics at Yale University.

    And, professor, after all, it is your index. When you look at the 20 city moving average, what does it tell you?

  • ROBERT SHILLER, Yale University:

    Well, we have been through the biggest housing bubble in U.S. history, at least since 1890 — I'm pretty sure all time.

    We became very speculative. You know, the real roots of this financial crisis seem to me to lie in complacency and excitement that led to a bubble, and it inevitably unwound. And we're in the aftermath of that now.


    For a few months, there were stories from markets around the country that things were calming, stabilizing. Then the prices continued to dip. What happened?


    Between the spring of 2009 and the summer of 2010, our indexes actually went up about 8 percent. And in some cities, they went up remarkably. San Francisco went up 22 percent.

    What happened? I think that it was the incipient recovery, the — which got kind of exaggerated in some people's minds. And particularly in bubble cities, like San Francisco, which has a history of bubbles, people wanted — they thought it was coming again. But, unfortunately, it pooped out.


    Is the continuing decline in prices now that we're seeing in this three-month 20-city average tied to the foreclosure, continuing foreclosure boom, and — and how?


    Of course it's tied to it. We, of course, were having foreclosure problems even when — even in the period I just talked about, when home prices were going up.

    But at that time, we had hope. In early 2009, the Obama administration introduced the HAMP program. And they also introduced the homebuyer tax credit. And it gave people a sense that something was being done. Now these programs — well, the tax credit has expired, and HAMP is under — it hasn't been a success, and it may not — it may never be a success.

    So, you know, people have kind of gotten into a funk again. They don't have the optimism that would lead them to think that this is it again; we're off to the races again.


    But you have got persisting low interest rates and month-on-month decreases in prices. Why hasn't that brought new buyers into the market that starts to stabilize prices?


    Well, that's one of the mysteries. You know, it has to do — people really are not interested particularly in buying homes now. You know, you can see that in NAHB's homebuyer — traffic of new homebuyers, housing permits and starts. Sales of new homes are at record lows.

    I don't know. It seems like people are in a wait-and-see attitude. They're — you know, the unemployment rate is 8.9 percent, really high. We had a depression scare. Now people think it's over. We have had good growth for a number of months, but they're not — I think people are just not so sure. And they're just not ready.

    It's a big decision to buy a house. And they're just not — they're just: Wait and see. Let's not do it.


    Those declining prices, instead of bring buyers to the market, are they perhaps leaving them a little scared that, if they jump in now, the house they buy today could be worth even less in six months?


    I think that's right. They're a little scared.

    The Michigan consumer sentiment survey confirms that people think there are a lot of good buys out there. But they're not buying. Why not? Well, I think it has something — yes, it's something to do with maybe a conservative attitude, maybe a sense that, you know, young people will think, maybe this isn't the time to start — maybe people are reassessing the whole idea of investing in a home.

    And they look at what Congress is doing. It's not so clear that the government is going to support the housing market like it used to. Another thing is the mortgage interest tax deduction, which Obama said he wants to limit. You know, people just have a sense that maybe we had an era of rising home prices, and not so sure about that now.


    People often talk of an intimate connection between the overall health of the economy and the health of the housing market. Could this latest trend endanger what is — seems to be a gathering economic recovery?


    It's true that residential investment, expenditure on new homes and new apartments, has often been a leading indicator. It's been related to a lot of booms and busts in the economy.

    But home prices don't track that as well as you might think. And, you know, home prices are not — we had a recession in 2001. It didn't bring home prices down. That was the beginnings of the bubble. They just kept going smoothly up, like there was nothing happening. So, I don't know. I think that maybe we're exaggerating it.

    People tend to talk in one breath about the recovery of GDP and the recovery of housing, but I don't think they're at all the same thing. Now, I think some long-term trends may be — we had a long-term trend toward a general sense that homeownership was a good thing, and we're all going to make a lot of money investing in our homes.

    I think that the financial crisis may have been — and I'm not sure — may have been a turning point in our public attitudes, so that we're — you know, think maybe renting isn't such a bad idea. Maybe I'm not going to buy a big McMansion or something like that.


    Professor Robert Shiller…


    But I don't know — yes.


    Professor Shiller, thanks for joining us.