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Robert Shiller: 'We have a lot of ingredients that might lead to a recession'

As the Federal Reserve gets more aggressive in its efforts to curb inflation amid implications from the ongoing COVID-19 pandemic continue to reverberate, Nobel Prize-winning economist Robert Shiller predicts that the cooling housing market is one sign among others that a recession may be on the way.

“We have a lot of ingredients that might lead to a recession,” Shiller told Yahoo Finance (video above). “It looks like, since just a few months ago, the talk is really negative.”

The latest S&P CoreLogic Case-Shiller national home price index recorded a 19.7% annual gain in May, evidence that prices are still soaring but at a slower pace. The 10-city composite jumped 19% from a year ago while the 20-city composite rose 20.5%. Cities reporting the highest year-over-year gains were Miami, Dallas, and Tampa.

“Existing home sales have gone down,” Shiller said. “Permits are down. So there are a lot of signs that we'll see something. And it may not be catastrophic, but I think it's time to consider [a recession].”

Last month, the National Association of Realtors (NAR) reported that U.S. existing home sales in June fell for the fifth month in a row. Meanwhile, the median existing-home price rose to an all-time high of $416,000.

“We are still trying to figure out this [home price] growth,” Shiller said. “It's not necessarily a bullish indicator. I like to look at the NAHB traffic of prospective buyers, and that has fallen off a cliff.”

The National Association of Home Builders (NAHB) component that tracks traffic of prospective buyers dropped by 11 points in July as another indicator, the monthly confidence index, sank 12 points in July, its second-largest decline in the history of the index.

The slowdown in housing is something the Federal Reserve is closely monitoring. In Fed Chairman Jerome Powell’s latest press conference, he noted that “activity in the housing sector has weakened, in part reflecting higher mortgage rates.”

Red and white
Red and white "Price Reduced, Home for Sale" sign in front of a red brick house. (Getty Images) (fstop123 via Getty Images)

Shiller expressed uncertainty about the trajectory of the housing market but underscored the risk as the Fed continues on its path to slow demand in the economy.

“I think that the risks are heightened right now for buying a house,” Shiller said.

Seana Smith is an anchor with Yahoo Finance. Follow her on Twitter at @SeanaNSmith.

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