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"Another Bubble" in Housing? It Could Happen, Says Yale's Robert Shiller

Posted Jul 13, 2009 08:30am EDT by Aaron Task
Related: UMM, DMM, XHB, DHI, KBH, LEN, PHM
The slowing rate of decline in home prices is likely to continue but the housing market is "still in an abysmal situation," says Robert Shiller, a professor of economics at Yale. The co-creator of the S&P Case-Shiller Index, which tracks national housing prices, says the housing market could "languish for many years," due to the "huge inventory" of unsold holds, "shadow inventory" of homes kept off the market by banks and other potential sellers, and "a lot of financial problems."

But incredibly, the author of Animal Spirits (with George Akerlof), The Subprime Solution and Irrational Exuberance believes "there could be another bubble" in housing, once the excess inventory is worked off. "This is not my more probable scenario [but] people have gotten very speculative in their attitudes toward housing," he says.

Shiller cites Boston as one area for a potential echo-bubble in housing, noting its typically volatile market did not fall in the past two years as dramatically as "more bubbly" cities like Phoenix. The professor and bubble expert isn't predicting it, but the fact he's even mulling the possibility is eye-opening, to say the least.

Whether you think the housing bubble is going to collapse further or reinflate, Shiller's firm MacroMarkets recently listed two indexes on the NYSE Arca that allow investors to place their bets (or hedge their own housing exposure): The bullish Major Metro Up (NYSE: UMM) and the bearish Major Metro Down (NYSE: DMM).

Going forward, Shiller hopes to offer similar securities for specific cities and geographic areas.

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