Robert Shiller is worried about a new housing bubble.

Dr. Robert Shiller, one of the creators of the famed Case-Shiller Housing Index expresses his concerns about the formation of a new housing bubble in this interview with Fox Business Channel.  At the beginning of the interview, Dr. Shiller points out just how much government policy is supporting the housing market through Fed policy, Fannie, Freddie, FHA and the tax code.   In fact, he is surprised that despite so much support, the housing recovery is not stronger.

More importantly, he points out that when you take into account the record low mortgage rates that have driven the housing market, home price appreciation, in real terms, is more moderate than people think.  Although he is not predicting that home prices will go down in the next year or so, he is concerned that as interest rates return to historical norms, it will have a dampening effect on both the housing market as a whole and home prices in particular.

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.