Yale Professor Robert Shiller, whose Case-Shiller 20-city home price index has become an industry standard, says people shouldn’t fear gradually falling home prices.
“There’s nothing troubling about a gradual correction of home prices. If we keep our incomes at the current level and home prices go down we are richer, we can buy more housing,” Shiller says.
But if home prices fall suddenly, Shiller says that could undermine housing as well as consumer confidence and the economy.
There has been a misperception that houses will constantly appreciate, Shiller says. “Sometimes people will try to imagine that we can have both high home prices and affordable housing. But I can tell you that doesn’t add up,” he says.
“You either have high home prices or lower home prices. And lower home prices are what we want, and people shouldn’t be afraid of that,” Shiller says. “Most of us care about our children and grandchildren, and these people have to buy houses so why would we want high home prices? We want economic growth, we don’t want high home prices.”