Shiller – We Can’t Trust Momentum In The Housing Market Anymore. It Is Driven More By Psychology Than Any Careful Calculations Than Affordability. As Soon As It’s Weakening, They’ll Exit.

Tue 26 Nov 13 | 09:15 AM ET 
The following transcript has not been checked for accuracy.should i make anything of the fact that 19 cities had lower projections than in august? i wouldn’t make anything of it, it’s seasonal. there’s much more balance, similar to last month. we’re still kind of up and away, aren’t we? we are. it’s kind of remarkable. if you look at a plot, it looks like we’re off and running. i say looks like. i don’t know if we really are but right now we are. robert, i don’t know. i deal with a lot of real estate companies and we hit a wall last month and sales stopped in this country. i’d like to know whether you’re seeing anything ahead of these numbers which indicate the incredible decline in transactions that has occurred during the month of october? well, i don’t know. i don’t have any explanation. i do a survey — i’ve done a questionnaire survey about home buyer attitudes and i don’t find that they’re as excited about the housing market as the price increases seem to suggest. it may be more of an unusual demand from investors that’s driving the market now or it’s the pullback from the large number of foreclosures we’ve had before. i just don’t see a lot of home buyer excitement, expectations. affordability kind of fell off a cliff. we have a lot of housing people on the show. and they tend to be as positive as they’ve been for the last five years, but to me, that affordability did get out of control. has historically affordability been a good indicator of the dropoff in sales? i’d have to check. i haven’t done the analysis. i would suspect not. i tend to think that the market is driven more by psychology than any careful calculations than affordability. how do you measure excitement? is that a subjective measurement? i try to measure it. i do it can questionnaire surveys. there are other people doing them, too. i just don’t see evidence that people think we’re launching out on some great new era. that’s what people thought in the early 20s. now they’re looking at the problems in congress and the fact that fannie and freddie are propping up the market and we have bills to wipe them out. people are not so excited or sure about the future. i might be actually happy they’re not feeling like they were in 2005. we don’t want to go back to that, you’re absolutely right. it would lift the economy but — of course we know how the story ends. professor, you mention the presence of institutions. we know the blackstones, the colonies and others that have been buying up a lot of individual homes. they may be at the end of that or certainly at the tail end of a lot of that buying. is that going to affect prices? the word seems to be from them that they’re long-term investors, but i suspect they’re not. i think what they’ve learned, i’m guessing, not from any direct information, they’ve learned therehort-term momentum in the market. but as soon as it’s weakening, they’ll exit. we can’t trust momentum in the housing market anymore. these guys will say it’s a brave new world and the rental market could last for years. maybe perhaps they are rationalizing the purchases like many people who bought stocks at 4,000 and 5,000 in the nasdaq in 2000? yeah, i think so. it’s true the rental market does seem to be coming back and a role for people who will convert owner-occupied to rental. but there’s also a speculative component. how can they not notice how fast home prices have been going up and the fact that historically momentum is a much better play in housing than it’s been in the stock market. so i’m pretty sure it’s on their minds. they’re not going to say this, i guess. they’re not going to say that we’re ready to dump them.finally, professor, real quickly on the markets, dow 16,000, nasdaq 4,000. what’s your reaction? well, it looks like we’re a little bubbly in the stock market. my cape ratio, real price divided by en-year average of real earnings. that’s pretty high. if it keeps going up like this, the expected return on the stock market will fall below the tips yield. that might be happening. i don’t know when it will end.
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