The Wall Street Journal quoted two respected economists today, Robert Shiller of Yale, and Stephen Roach of Morgan Stanley. Both of them expressed their lack of optimism for the current real estate market, citing concerns ranging from sell offs in emerging markets to the state of the American consumer.
Shiller, author of “Irrational Exuberance” (2002) does not agree with the soft landing scenario. While the Fed and others have predicted a slow down, saying the market fundamentally remains strong, market fundamentals are “not that strong.” according to Mr. Shiller.
Stephen Roach’s concerns have a more global outlook. He worries that the situation of the American consumer has far reaching implications. As consumers here face mounting debt and a slowing real estate market, it is increasingly likely consumption will decrease. It is on these concerns that markets in Russia, India and Brazil have dropped 20% in the past five weeks.
And what could all this mean for the housing market? According to Mr. Shiller, buying based on psychological factors could end suddenly. Eventually, he states “you run out of people” and the tide turns like a “disease epidemic.”
The 2006 home buying season should be peaking in the next few weeks. It will be interesting to see how this landing plays out.
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