Fannie Mae and Freddie Mac’s fiscal woes could spell big trouble for taxpayers, who are responsible for the roughly $145 billion in losses the two agencies have incurred on loans they backed, according to CNBC. If housing prices fall further, experts say those losses could grow rapidly — some estimate as high as $1 trillion. Robert Shiller, co-creator of the Case-Shiller Home Price Index, said that the burden on taxpayers has become significant. “Some of use who don’t even own homes are paying to support others and their home ownership,” Shiller said. [CNBC]

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Fannie Mae and Freddie Mac’s fiscal woes could spell big trouble for taxpayers, who are responsible for the roughly $145 billion in losses the two agencies have incurred on loans they backed, according to CNBC. If housing prices fall further, experts say those losses could grow rapidly — some estimate as high as $1 trillion. Robert Shiller, co-creator of the Case-Shiller Home Price Index, said that the burden on taxpayers has become significant. “Some of use who don’t even own homes are paying to support others and their home ownership,” Shiller said. [CNBC]

[more]

Jonathan Miller

From the April issue: The words may change, but it’s always a variation on the same tune: Every couple of months, someone sings the song of Case-Shiller, the widely cited home price index. The question for New Yorkers is whether it’s a local theme song. While there is no question that the Standard & Poor’s/Case-Shiller 20-city housing index is an influential measure of the country’s shifting real estate fortunes, some New York-based number crunchers argue that it says almost nothing about the city’s — particularly Manhattan’s — real estate reality. Still, New York City publications often cite the index (one recent story ran under the headline “Housing Index: New York home prices decline 10 percent”). [more]

Ever since the housing bubble burst, real estate industry bigwigs, regulators and policy makers have been working to get lenders back on their feet, curtail foreclosures, and above all, make sure none of this ever happens again. Robert Shiller, the Yale University economist and co-founder of the S&P/Case-Shiller home-price index, believes efforts on that last front may be partially in vain. Market bubbles, Shiller wrote in a Newsweek column this week, will inevitably be repeated because they are the byproduct of the psychological impulse to “buy into ‘new era’ stories that exaggerate how much the world has improved.” If anything, the tendency to give into what Shiller calls the “herd mentality” has intensified with the advent of social media like Twitter and Facebook, he argued. Even in the immediate aftermath of the subprime bust, a recent Case-Shiller survey found that Americans’ mid- and long-term expectations were for prices to increase, in direct contradiction to Shiller’s findings for home prices over the past century. [Newsweek]

Robert Shiller isn’t sure that the economic recovery is anything more than a “spontaneous recovery of confidence,” he said in a CNN interview with Fareed Zakaria yesterday. The Yale professor and economist behind the Case-Shiller Index said the government’s stimulus may not have been large enough on its own to fuel the increase in housing prices that we’re seeing. He said he doesn’t know exactly what the source of this recovery is, but that it could be renewed confidence in the government’s ability to react at all, rather than the government’s actual actions. He added that the disparity between rich and poor Americans is not sustainable without creating a “winner-take-all” economic system that will inevitably result in resentment and hostility. [more]

Home prices in many U.S. metropolitan areas are nearing so-called “bubble territory,” according to Robert Shiller, co-founder of the Case-Shiller home price index. Home prices in the U.S. are “zipping up,” according to Shiller, as the S&P/Case-Shiller composite index of prices in 20 metro areas showed a 1.2 percent rise in average home prices from July to August. Certain U.S. cities, like San Francisco, have seen double-digit upticks in average price, a trend that could end badly, the economist said. Still, Shiller said that it’s difficult to determine how the rising prices could ultimately affect the market. “It is entirely possible that even with the bad news we are getting, home prices could start a major increase,” Shiller said. “What happens from here will depend on people’s animal spirits and speculative impulses.” Shiller sat down with CNBC today to analyze the sharp turnaround in prices.
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Once the excess housing inventory now on the market has been sold, Yale
economist Robert Shiller says another housing bubble is possible.
Shiller, co-creator of the Case-Shiller Index, which measures housing
prices nationwide, said people are speculative enough about buying real
estate that a bubble could happen. Boston is one housing market where
such a bubble might take place, because the city’s property market has
not fallen as drastically as other cities’ housing markets. [more]

Home prices in the U.S. may continue to fall for some time, economist Robert Shiller
wrote in the New York Times, even though such price declines seem to go
against common sense and standard economic principles. Shiller explains
why price declines are likely to continue once they’ve started.
Retirees are likely to move to retirement communities now and put their
homes on the market, increasing the supply of available homes. But
renters, seeing the uncertain employment climate, may not enter the
market, so there will be fewer buyers for that larger amount of
inventory. The high supply and low demand could keep prices down for at
least several more years. [more]