December 27, 2011

Robert Shiller To His Yale Students: It’s A Good Time To Buy A House

December 27, 2011

Robert Shiller To His Yale Students: It’s A Good Time To Buy A House

Case Shiller home price index co-creator and Yale professor Robert Shiller just talked to Bloomberg’s Matt Miller, as he does most months on the day Case Shiller numbers are released (see today’s here). No big surprise that his comments are so broad. He’s not trying to analyze local numbers, his role is to offer national perspective.

Even his 20 “city” numbers aren’t based on cities, they’re based on broad geographical regions. Using my own area as an example, the San Francisco “city” component of his index is not the city of San Francisco, it’s a five-county Bay Area region across which there are radical price differences.

This is just one of many facets of Case Shiller’s methodology that makes it less credible for local decision making.

Homebuyers and sellers can’t make relevant decisions using only this data.

They have to make decisions by studying local MLS data for recently sold comparable units with their realtor. And they have to see each property to analyze condition/environmental factors that even MLS data can’t communicate.

All that said, it’s still interesting to hear Shiller’s marco view, so here are a couple notes from listening live. And below that is the full Bloomberg video.

Most notable is his last point: advice to young people on whether to buy a home.

Robert Shiller on Home Prices (paraphrased):
Is housing stabilizing?: Numbers better but still low. Hope would be that people see optimism, and they start an upward spiral. It’s early, but it might start happening.

On consumer confidence: The recent upturn is a positive sign. But if you look at consumer confidence, it’s always up and down, and it’s been down for a decade. Is recent upturn a blip or a serious turning point? These data don’t confirm a serious turning point yet.

Do you see a changing trend: During housing bust, all 20 Cities in the index dropped together. In October, 19 of 20 cities still dropped. “That’s not extreme diversity”, it’s actually more of the same.

Is broader economy recovering?: The outlook for government is especially strong when the economy is weak.

How is the state of finance: I’m bullish on finance for the long run. Finance is a central technology. The U.S. is very good at this technology. It’s still a good time to go into finance if you’re in for the long run.

Do you tell your students to buy a house?: Depends on circumstances. But if you’re staying where you are for 10-15 years, then it’s a good time to buy. Rates are harder to predict than home prices, and rates are incredibly low now. You can lock in rates for 15 years to 30 years, that’s interesting.