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Special Reports
Home Equity Lending
Expert Worries About Price Volatility
By Anthony Garritano
Although the U.S. is experiencing a housing boom the likes of which it hasn't
seen since after World War II, volatile home prices should make everyone pause for concern, according to Yale University
Professor of economics and MacroMarkets' chief economist Robert J. Shiller.
At a press conference held at Standard & Poor's New York headquarters on June
16, Professor Shiller, along with David Blitzer, managing director and chairman of S&P's Index Committee, spoke
about the current state of housing prices in the U.S. At the conference, Professor Shiller said the last housing
boom the country saw was back in the 1940s, but there were identifiable reasons for this (as opposed to today).
"After World War II, the soldiers came back and they wanted houses and started
the baby boom. And when you had babies, you wanted houses with at least two bedrooms, and that wasn't so common
back then. They went on a buying spree and it pushed home prices up," he said of the previous boom, but couldn't
find an adequate reason for the soaring prices this time around. "I don't see why home prices should be shooting
up that strongly. It's a sign of concern."
Professor Shiller, author of "Irrational Exuberance" and co-producer
of the S&P Case-Shiller Home Price Indices, explained at the conference that one cause for concern for the
road ahead is how, in many markets, such as Boston and San Diego, rents are relatively stable, although housing
prices are quite unstable.
"The pattern shows that home prices are more volatile than rents by a wide
margin," he said. "Home prices have shot way up. Rents have been increasing, but at a regular rate."
He added that the rise in home prices have been outpacing the rises in construction
costs, rents and income by a long shot.
Professor Shiller pointed out that, despite believing that home prices would continue
to rise, the advent of the S&P Case-Shiller Home Price Indices, which were launched in May 22 of this year,
may make the residential housing market less volatile.
At the press conference, Mr. Blitzer agreed. "Until last month the only way
a person could invest in residential real estate was to buy a house," he said. "This has all changed
with futures on the S&P Case-Shiller Home Price Indices."
The S&P Case-Shiller Home Price Indices were designed to measure the average
change in U.S. home prices and are based on 10 cities (Boston, Miami, New York, San Diego, San Francisco, Washington,
D.C., Chicago, Denver, Las Vegas and Los Angeles). They are now the basis of new futures and options trading at
the Chicago Mercantile Exchange.
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