On Friday CNBC interviewed Robert Shiller, the guru of the housing market – the man who saw the housing bubble coming, developed the Case Shiller home price index, and coined the term “irrational exuberance”. This Yale economics professor has studied the housing market going back 150 years and is always a great source of insight.
In the video below Shiller makes the point that the Fed can’t fix the housing market, which shouldn’t really be a surprise (except to politicians) because in general governments are powerless against market forces. While the Fed’s extraordinarily low mortgage rate policy has made home buying extremely attractive, Shiller’s data shows no correlation between mortgage rates and home prices. In other words, based upon history there is no reason to believe that these low mortgage rates can boost prices and, conversely, when rates rise they probably won’t depress prices. I know that seems counter intuitive but data doesn’t lie. In addition, Shiller points out that there is no real urgency for people to rush out and buy homes right now because it’s not like either home prices or mortgage rates are going to skyrocket and time soon.