The Unassuming Economist

From Bob Shiller on the US housing market:

On the current housing boom:

“(…) this is the United States’ third biggest housing boom in the modern era. (…) All we do know is that prices have been roaring higher at a speed rarely seen in American history.”

On possible explanations:

Low interest rates: “There is some apparent merit to this view, since these three biggest nationwide housing booms all included very low interest rates. But the market reaction to interest rates is hardly immediate or predictable. The housing market does not react as directly as you might expect to interest rate movements. Over the nearly seven years of the current boom, from February 2012 to the present, all major domestic interest rates have increased, not decreased. So, while interest rates have been low, they have moved the wrong way, yet the boom has continued.”

Economic growth: “Another explanation is simple economic growth. But, as a matter of history, prices of existing homes—as opposed to the supply of newly built homes— have generally not responded to economic growth. There was only a 20% increase in real prices of existing homes in the 50 years from 1950 to 2000 despite a sixfold increase in real GDP.”

Return to normal: “The simplest narrative being given for the current boom is just that the 2008-2009 financial crisis and the so-called Great Recession are over and home prices are returning to normal. But that explanation does not cut it either. In September they were 11% higher than at the 2006 peak in nominal terms, and almost as high in real terms. This is not a return to normal, but a market that appears to be rising to a record.”

President Trump: “It is difficult to assess the contribution of President Trump to the current boom. (…) The Trump administration’s attitude toward housing is less clear. President Trump’s slogan “Make America Great Again” has overtones of the “American dream.” But provisions of his Tax Reform and Jobs Act of 2017 were unfriendly to homeowners.”