Rosalind Evans
Yale University’s Economics Professor Robert Shiller has predicted the end of the U.S. home price rally that has been ongoing for a decade, contingent on the Federal Reserve ceasing its cycle of rate hikes.
According to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, home prices have consistently risen since 2012.
Shiller conveyed to CNBC’s “Squawk Box Asia” that the fear of escalating interest rates has impacted decision-making for homeowners and potential buyers looking to secure their investment before rates climb even higher. He suggested that this fear has been favourable in driving the market, but it might soon wane.
Pointing to the Index, Shiller acknowledged some “unusual behaviour” over the past six months, with prices appearing steady before beginning to rise.
In May, U.S. home prices achieved a record high, with a 0.7% national rise from April on a seasonally adjusted basis, as per the Black Knight Home Price Index data.
Shiller voiced his observations about the general uncertainty surrounding the Federal Reserve’s future actions. The Fed hinted in its June meeting that further tightening might occur, but likely at a slower speed than the rate hikes that have defined its monetary policy since early 2022.
Shiller noted the significant surge in interest rates over the past few years, suggesting that people might feel that this increase is sufficient. He added the possibility of a soft landing, though he didn’t expect it to be perfect.
Despite these predictions, Shiller maintained a calm stance, attributing a part of the recent home price increase to seasonal factors, as prices usually rise during the summer.
The Federal Reserve’s rate decision is anticipated this week, following its scheduled meeting on Wednesday. Reuters has polled economists predicting a potential interest rate hike of 25 basis points.
As economists and homeowners anticipate the upcoming Federal Reserve meeting, the housing market stands at a potential crossroads. With the ten-year rally in home prices possibly drawing to a close, the Fed’s decision could significantly shape the housing market’s future. Despite the potential uncertainties, Shiller’s perspective offers a calming reassurance, emphasizing that seasonal trends contribute to current price increases and that a softer landing may be in sight, even if imperfect.
