Lecture 12: Real Estate Economics 252, Spring 2008 Prof. Robert Shiller, Yale University Real US Home Prices 1890-2007-IV Long-Term Expectations “On average over the next ten years, how much do you expect the value of your home to change each year?” (median answer) Los Angeles Milwaukee 1988 2003 2006 1988 2003 2006 10% 8% 6% 4% 5% 6% Fears of Being Left Out “Housing prices are booming. Unless I buy now, I wont be able to afford a house in the future.” Los Angeles Milwaukee 1988 2003 2006 1988 2003 2006 Agree 79.5% 48.8% 52.3% 27.8% 36.4% 43.6% Disagree 20.5% 51.2% 47.7% 63.6% 73.6% 56.4% Perceptions of Excitement “There has been a good deal of excitement surrounding recent housing price changes. I Sometimes I think I may have been influenced by it.” Los Angeles Milwaukee 1988 2003 2006 1988 2003 2006 Yes 54.3% 46.1% 58.0% 21.5% 34.8% 43.1% No 45.7% 53.9% 32.0% 78.5% 65.2% 56.9% “Stock Market is Best Investment” “The stock market is the best investment for long-term holders, who can just buy and hold through the ups and downs of the market.” 1996 1999 2000 Oct 2001 -Feb 2002 1. Strongly agree 69% 76% 63% 60% 2. Agree somewhat 25% 20% 34% 31% 3. Neutral 2% 2% 2% 3% 4. Disagree somewhat 2% 1% 1% 5% 5. Strongly disagree 1% 1% 0% 1% (U. S. Individual investors; numbers for 2000 are mid-year, after peak of market.) “Real Estate is Best Investment” “Real estate is the best investment for long-term holders, who can just buy and hold through the ups and downs of the market.” Los Angeles Milwaukee 2003 2006 2003 2006 1. Strongly agree 53.7% 37.7% 31.3% 41.3% 2. Agree somewhat 33.1% 62.3% 45.9% 34.9% 3. Neutral 10.3% 0.0% 11.3% 17.5% 4. Disagree somewhat 2.7% 0.0% 9.1% 6.4% 5. Strongly disagree 0.0% 0.0% 2.1% 0.0% Mortgage Debt Accelerates Uptrend Since 2000 Comparing Real Home Prices in Greater London and Greater Boston 1983-2007 Fig. 4 Real Home Prices Netherlands, Norway, USA 1890 to 2004-5-7 Case Shiller Surveys of Homebuyers 1988, 2003-7 “On average over the next ten years how much do you expect the value of your property to change each year?” Residential Investment 1948-I-2007-IV as Leading Indicator of Recessions Growth Rate of Home Prices Housing Permits (One-Unit) 1999- Jan 2007 NSA Traffic of Prospective Home Buyers 1984-Feb 2008