Back to summer of 2005 Yale University professor Robert Shiller predicted that the U.S. housing market “bubble” will collapse. The only question was when. We all know how the story ends. The U.S. housing market faced the worst collapse since Great Depression with home prices fallen almost 50 – 60 per cent in some U.S. areas. The last month of 2008 the Case-Shiller home price index which measures housing prices nationwide, reported its largest price drop in its history. Take a look at the following chart based on Case-Shiller index, adjusted for inflation. Since World War II the index seems to move naturally at 110 on the index scale except from the small “bubbles” in the 70s and 80s with a movement at 125 on the index scale. As you can see in the recent boom we have a movement at 200 on the index scale….
It is fully understood how bad things are for the U.S. housing market and how late the recovery would be with people not ready to spend again and with a high inventory of homes remain unsold. Prof. Shiller support that the prices will continue to fall for a while, but at a slower pace, and then stabilize. Also he doesn’t exclude the possibility to have an other housing “bubble” but not sooner than the next five to 10 years.
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