Shiller: Today’s Housing Boom Will End, But Slowly

The market won’t collapse all at once, yet the dip still will be painful, economist says.


Academic Robert Shiller once called the stock market’s performance “irrational exuberance” in a 2000 book title—it presciently foresaw the bursting of the dot-com bubble. He says another such bubble is about to deflate, albeit slowly: housing. 

Burgeoning home prices cannot keep going up, and eventually will drop, he told a Yahoo Finance video program. “They’ll come back down, not overnight, but enough to cause some pain,” Shiller said.

Sure, Yale professor Shiller is a prominent perma-bear, yet his reasoning is worth listening to. He has long specialized in residential real estate, and even developed a price index for the field, along with the late Karl Case, a fellow economist.

There’s no denying that the housing scene has gotten frothy. The latest S&P CoreLogic Case-Shiller national home price index, for March, showed a 13.2% annual increase. That marks the fastest rise since 2006.

For more stories like this, sign up for the CIO Alert newsletter.

Other real estate barometers back this up. On Tuesday, the Commerce Department reported that the median price of a new home in April was $372,400, a gain of 20.1% over the previous 12 months. That’s the strongest annual hike since 1988. Meanwhile, the median sales price for existing homes climbed 19.1% annually through last month to $341,600, the National Association of Realtors indicated last week.

Why is this happening? To Shiller, a Nobel laureate, prominent factors are low interest rates and pent-up demand inspired by the pandemic-forced lockdowns. Plus, there’s a psychological element, he added.

“People are having fun, and they will as long as prices keep going up,” Shiller said. He compared the situation to the years right after World War II, another time of willy-nilly spending, which has echoes of the euphoria that many are showing amid what they hope is the pandemic’s end. After peace arrived, he said, “There was a spending spree by people. They were jubilant the war was over.”

Alas, today’s levity won’t last forever—although he doesn’t look for a sudden swoon. “This is not a market that collapses overnight,” Shiller maintained. “It’s less short-run volatile than the stock market.”

Shiller thinks the current housing market looks similar to that of 2003, at the outset of the last housing bubble. “There is excitement and people are talking and some people are bidding way more than the asking price,” he said, “and that becomes a narrative or a story.”

While terming the present home-price run-up “disquieting,” he pointed out that the easy-mortgage environment that fueled the housing crash of 2008 is not the case nowadays.

“We have better protections, we have better supervision of lenders” now, he said. And he noted that, aside from the demand frenzy, current spiraling home prices stemmed in part from forces such as a lumber shortage. This is the result of a closing of sawmills in the wake of the last housing bust.

Related Stories:

Economic Pain May Last for Years, Shiller Warns

Shiller: A Recession Is ‘Highly Likely’ Due to Virus Panic

Shiller Doubts Booming Earnings, Now Propelling the Market, Will Last

Tags: , , , , , , , , ,

Market Rebound Spurs Record 33.55% Return for NY State Pension Fund

Equities helped boost the investment portfolio’s asset value by more than $60 billion to $254.8 billion.


The New York State Common Retirement Fund (NYSCRF) reported a 33.55% investment return for the fiscal year ending March 31, the largest one-year investment return in the fund’s history. It easily beat its long-term expected rate of return of 6.8%.

The performance, which reflected the financial markets’ rebound from last year’s market crash after the COVID-19 pandemic first hit, raised the fund’s asset value to an estimated $254.8 billion from $194.3 billion as of the end of fiscal year 2020.

The New York fund lost about 2.7% in the previous fiscal year, which ended as the pandemic closed down a lot of the country and sent markets skidding.

“The state pension fund rode the market rebound from the depths of the pandemic and enjoyed the largest one-year investment return in its history,” New York State Comptroller Thomas DiNapoli said in a statement. “This outsized return reinforces the fund’s position as one of the strongest in the nation.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

However, DiNapoli cautioned that the historic returns come with a warning: “Markets remain volatile and as unpredictable as ever,” he said. “With our talented investment staff, I will continue to manage our state’s pension fund with prudence and a focus on stable, long-term results.”

The investment performance was led by global and domestic equities, which returned 64.58% and 61.40%, respectively, followed by non-US equities, which gained 54.57% during the year.

The portfolio’s real estate investments were the weakest-performing asset class, aside from cash, returning 2.19%, followed by fixed income, which returned 2.61%. Real assets was the only other asset class that didn’t end the year with double-digit returns at 7.34%.

Among the portfolio’s other asset classes, private equity and credit returned 23.83% and 20.38%, respectively, followed by opportunistic/absolute return, which returned 19.69%.

As of the end of fiscal year 2021, the fund’s asset allocation was 33.58% in domestic equities, 20.82% in fixed income, 13.64% in non-US equities, 10.57% in private equity, 6.75% in real estate, 5.60% in global equities, 3.26% in credit, 2.32% in cash, 1.97% in opportunistic/absolute return strategies, and 1.49% in real assets.

Related Stories:

New York Does Not Expect to Meet 6.8% Fiscal Year Target

NY State Pension Fund Commits Over $1.3 Billion in Investments in March

New York Common Fund Returns 10% in First Quarter

Tags: , , , , , ,

«