June 24, 2024

Robert Shiller Says Home Price Rally Could End When Rates Stop Hiking

  • The ten-year rally in home prices could end when the Fed ends its tightening cycle, said Robert Shiller.
  • He told CNBC that earlier rate hikes pushed people to buy homes before borrowing costs rose even more.
  • “So that’s a positive impact on the market, but it’s coming to an end.”

More than 10 years of home price gains could soon come to an end as the Federal Reserve’s tightening cycle ends, Yale economist Robert Shiller said CNBC.

Since the beginning of 2012, the S&P CoreLogic Case-Shiller Index of house prices yes he climbed steadily. Although it peaked in June 2022 and went down, it resumed its upward trajectory in January.

That’s how last year’s Fed rates increased mortgage rates, which kept existing homes off the marketbut also boosting home buyer demand, Shiller said Thursday.

“I think the fear of interest rate increases has influenced people’s thinking,” he said. “It’s not just homeowners. It’s new buyers who wanted to get in before the interest rates went up even more. They wanted to lock in. So that deal had a positive impact on the market, but it’s coming to an end.”

He acknowledged “abnormal behavior” over the past six months in the index he co-founded with economist Karl Case.

The housing market took off, then started to go back up, Shiller said, saying “people don’t know what to make of ‘what is the Fed going to do?’ situation.”

That contrasted with the housing market’s traditional reputation for being more easily predictable, he said, especially after more than 10 years of steady gains in home prices that investors assumed would continue.

“But it could be coming to an end with the end of this interest rate-raising cycle,” Shiller said.

His view runs counter to others on Wall Street who believe Fed rate hikes are over to support home prices as borrowing costs moderate and return more demand.

For example, real estate forecaster Barry Habib recently said that a coming slowdown would be enough to trigger interest rate cuts, ease mortgages and cause prices to rise 3% to 7% over the next few years.

But Ritholtz Wealth Management CIO Barry Ritholtz echoed Shiller’s sentiment, saying rate cuts would reduce housing costs because higher rates restrict housing supply.

Meanwhile, the Fed meets next week, and markets are widely expecting another quarter-point hike, which could be the last of the current hiking cycle.

As the latest consumer price and producer prices have shown inflation cooling more than expected, Wall Street has begun to abandon forecasts for additional rate hikes later this year.

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