Shiller Study: Housing Recovery No Sure Thing

In a new paper, housing guru Robert Shiller and two of his colleagues say they aren’t yet convinced the housing market is in a recovery.

“A recovery may be plausible, and home prices have been rising fairly strongly in recent months, [but] we do not see any unambiguous indication in our expectations data of sharp upward turning point in demand for housing that some observers, and media accounts, have suggested,” Shiller writes, along with Karl Case and Anne Thompson, in the paper, which is titled “What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets,” and published by the National Bureau of Economic Research.

The study was based on the responses to surveys issued in four U.S. cities in 1988 and annually from 2003-2012. It explores both what drives homebuyer behavior, and what caused the housing bubble in the 2000s. “We find that homebuyers were generally well informed, and that their short-run expectations if anything underreacted to the year-to-year change in actual home prices,” Shiller and his colleagues write. “More of the root causes of the bubble can be seen in their long-term, ten-year, home price expectations, which reached abnormal levels relative to the mortgage rate at the peak of the boom and declined sharply since.”

Those long-term expectations are a key driver of the housing market, but they haven’t bounced back since the housing bubble bursting. “The answers to the latest questionnaire indicate that while perceptions of short-term price direction have turned positive, long-term expectations continue to weaken,” Bloomberg’s Simon Kennedy reports in discussing the study.