Reuters Writes: Nobel Prize U.S. winner warns of ‘bubbly’ global home prices
(Reuters) – One of three American economists who won the 2013 economics Nobel prize on Monday for research into market prices and asset bubbles expressed alarm at the rapid rise in global housing prices.
Robert Shiller, who shared the 8 million Swedish crown ($1.25 million) prize with fellow laureates Eugene Fama and Lars Peter Hansen, said the U.S. Federal Reserve’s economic stimulus and growing market speculation were creating a “bubbly” property boom.
This was the case in the collapse of the U.S. housing market, which helped trigger the 2008-2009 global financial crisis. Markets are at risk of committing the same error now, Shiller told Reuters after learning he had won the Nobel prize.
“This financial crisis that we’ve been going through in the last five years has been one that seems to reveal the failure to understand price movements,” Shiller said.
“When asset prices are getting way out of line it should be cause for alarm. The monetary authorities should lean against extreme asset price movements,” Shiller said.
The bubbling housing market is not mainly the result of central bank policy, but reflects a shift toward “a more speculative attitude,” Shiller said. “We cannot expect monetary policy to cure all of these problems.”
I have a lot of respect for Mr. Shiller and I am happy that he won. My respect is not necessarily based on his economic work(even though it has been accurate), but on his ability to take sides. Most economists don’t do that. Most talk out both sides of their mouth without as much as saying anything worthwhile. That is academia for you.
I agree with everything Mr. Shiller states in the article above. Indeed, we are in the midst of a “Global Real Estate Bubble”. This is a unique situation that we haven’t seen before on such a massive scale. The culprit is easily identifiable here as well. Cheap financing on a global scale perpetuated by the FED. The outcome is clear as well, an eventual collapse in credit, real estate and financial markets on a global scale. Anything other than that would defy the laws of physics. For now, it is only a matter of time.
In my previous post I Am Calling For A Real Estate Top Here, I have made a gutsy call that we are indeed topping out here. I firmly stand by that analysis as we continue to get more concrete evidence that the real estate market rally from the 2010 bottom has indeed peaked.
As such, I once again caution you against speculating in real estate at this time.
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