Risk Still Present in the Market

In an interview with the WSJ, housing guru and creator of the S&P/Case-Shiller Housing Index Robert Shiller states that despite recent improvements in housing prices, risk still remains in the market.  While Shiller sees upward momentum, he is not ready to say the market has bottomed out.  He does not see much enthusiasm in the market and has concerns regarding the impact of the high level of government support for housing (i.e. low interest rates and the government backing almost 90% of all mortgage originations through Fannie & Freddie).  While one could say he is cautiously optimistic, he attributes much of the recent price spikes in some indexes to a slowdown in foreclosures and some markets overshooting on the downside.  In conclusion, he sees today as an “OK” time to buy a house as most homes appear to be fairly priced and mortgage rates are near historic lows.  He is predicting modest price appreciation more in line with historic norms of 1% – 2% per year.  If you are buying a home to live in, now is still a good time to buy but if you are buying a home strictly as an investment, you will want to be careful.