We were lucky enough to hear Robert Shiller speak at the Distressed Real Estate Summit a few weeks back. We found most of what he said to be interesting, as we hope you will, too.
He began with speaking about the misquoted relationship between the economy and housing prices, noting that, in fact, the relationship is one between the economy and housing construction. He believes that this housing bubble is unprecedented in the US, and likely puts us in a difficult economic position for years to come. The current anomalies in the market are making it such that he doesn’t quite know how to weigh incoming data. While his old model would have been predicting price declines for years, he wants to give some of the “green shoots” data the opportunity to indicate a recovery, pointing to a bottom in March of this year.
“I don’t expect a full recovery over the next few years,” he said, to no surprise of audience members. Unlike in ’74, ’79, and ’90, we’ve had a real depression scare during this down-turn. He sees two different mindsets out there:
- “This could be a depression” and
- “We’ve been through this before and we always come out of it“.
There is a nagging fear out there in our collective consciousness that this is not just another recession.
Precisely during this economic climate, Shiller believes the administration should be setting the groundwork to create new, better economic and retail institutions, finding it astonishing that “we’ve allowed 15 million homeowners to be under water”.
In addition, he has launched two housing MacroShares ETFs on the NYSE: UMM takes a synthetic position in buying a home with 1/3 the money, while DMM is the equivalent of shorting the market. Brilliantly enough, anyone can use these ETFs to hedge their personal exposures to the real estate market.
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“Hope and Change” (for the worse) promised that this was worse than anything we had seen since the depression and the prediction created more savings rather than free-flow of capital, which further accelerated the decline of the market.