Despite the recent market decline, Americans are still willing to borrow a large amount of money to buy a home because they are convinced that housing values will rise, writes Robert J. Shiller in his monthly New York Times column.
Shiller, professor of economics and finance at Yale University and cofounder and chief economist of MacroMarkets, examined survey data that asked home buyers in Los Angeles, San Francisco, Milwaukee, and Boston a variety of questions, including how much they believe the value of their homes will change in the next year.
The average answer among the 311 people surveyed was an increase of 11.2 percent. The media response was 5 percent, which Shiller also believes is high.
Such upbeat answers about the housing market led Shiller to conclude that home buyers think the decline in home prices is over and now is the time to buy. Their optimism, Shiller says, has caused an upturn in prices.
Shiller has doubts that this increase signals a new housing boom. Instead, he says it is evidence of higher short-run price volatility, which is economist-speak for a warning that prices could go down again.
Source: The New York Times, Robert J. Shiller (10/11/2009)