Recent housing and employment data suggests the economy is at a tipping point, while home prices could have much further to fall, veteran economist Robert Shiller said Thursday.
"My gut feeling is we might see a continuation of the decline (in home prices)," Shiller said.
He added that a 10 to 25 percent slump in real home prices "wouldn't surprise me at all," though he cautioned that was not a forecast.
Speaking at the Standard & Poor's housing summit, Shiller said recent data showing U.S. home prices fell into a double dip in March could prove to be either a seasonal effect over the winter months or part of a downward trend.
Another uptick in the unemployment rate might also start to point to a double-dip recession, he said.
Shiller is the co-founder of the S&P/Case-Shiller home price index and is known for warning about bubbles in the stock market and housing market.
Did he use the phrase tipping point? A tipping point in the economy could very easily lead us to Critical Mass and a waterfall event in real estate values. The underlying support in real estate is so thin right now it wouldn't take much economic damage on the macro level!
I love the work Schiller does, but some of his quotes made me giggle. His gut tells him prices could continue lower. He added it could be another 10-25% to the downside. But then stated that's not a forecast.
Nobody likes to come out and say it, "real estate is going down!"
I still think we have lower to go in values and that is a forecast. At best, we might get a summer time dead cat bounce, but I ask, "What has really changed in this economy on Main Street?" Not much is the simple answer.
Is real estate in many markets still over valued? Yes. Is the supply/demand equation bearish? Yes. Financially distressed real estate? Yes. Will more prudent lending standards including a 20% down payment decrease demand? Yes. Will municipal budget deficit resolution hurt real estate values? Yes. Will higher taxes some day make real estate less affordable? Yes.
I keeping reading people writing articles or blogs: Is now the time to buy real estate?
While I can make a case for some of the hardest hit areas in this country that their real estate is fundamentally cheap, I wouldn't make that case nationally.
But more important is the question of what is so bullish for real estate? The only answer I can come up with is maybe we get a slide in values of 10-25% or more, and cheaper real estate brings a bullish feel back to the market. It's the only thing other than more government intervention.
If prices did slide another 10-15% nationally, I would also say we are at or past Critical Mass. Then it's really a question of the psychological back drop. Will we see larger numbers of people sell and capitulation providing a water fall event?
The conditions are ripe and moving towards Critical Mass, and this could happen in the next 12-18 months!
Hope all is well.
J.D. Rosendahl, Rosey