In his column in the Sunday New York Times business section, Yale economist Robert J. Shiller probes the reasons why the housing market collapse took place, and forecasts a very slow recovery.
Shiller, co-creator of the S&P/Case-Shiller National Home Price Index, writes:
"Home prices rose nearly 10 percent a year on average in the United States from 1997 to 2006, long enough for many people to become accustomed to the pace and to view it as normal. The conventional 30-year fixed mortgage rate averaged 6.8 percent over those years, far below the appreciation rate on housing, so even if you had a substantial mortgage, you were becoming wealthier by the day, at least on paper."
"During the bubble, the sense of rising wealth and high expectations gave people a good reason to spend and a greater willingness to plunge into investment, too."
"The mood is far different now. Our latest survey, covering April and May of this year, included 296 home buyers, and their median expectation for annual home price appreciation over the next decade was down sharply, to just 3 percent."
"Even for people who have other reasons to buy a house, there may be little urgency to do so. Our 2011 survey found that the median expectation for home price appreciation next year is just 1 percent. So it won’t be surprising if new home sales remain abysmally low and few jobs are created in the hard-hit construction industry. And it shouldn’t be a shock if the personal savings rate stays at around 5 percent, as it has recently, up from around 1 percent in 2005. This would mean that consumer spending will not drive a strong recovery."