U.S. House Price Decline Could Be Worse than Great Depression

, Economist Shiller Says
Posted Sep 04, 2008 01:36pm EDT by Henry Blodget in Newsmakers, Recession
Related: ^gspc, fre, fnm

Eight years ago, Yale superstar professor and MacroMarkets chief economist Robert Shiller famously called the top of the stock market in his book Irrational Exuberance. Then, a year before the housing bubble peaked, he predicted the colossal bust we are now experiencing.

If you recognize Shiller's name, it’s because the Standard & Poor's/Case-Shiller home price indexes, which he developed with Wellesley College economist Karl Case, have become the nation's most authoritative source for home price trends.
 
In part one of my one-on-one with Shiller, we discuss the grim outlook for U.S. housing, which he tackles in-depth in his new book The Subprime Solution. Highlights of our first discussion include:

    * Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it's not a stretch to think we might exceed that drop this time around.
    * There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).
    * The current hopeful consensus -- that house prices will bottom soon and then begin to recover -- is most likely a dream. Housing markets don't usually have "V-shaped" recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money.


http://finance.yahoo.com/tech-ticker/article/53094/U.S.-House-Price-Decline-Could-Be-Worse-than-Great-Depression?tickers=^gspc,fre,fnm