Shiller: Another housing bubble may be unavoidable

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]