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The decade-long rally in home prices could end when the Fed wraps up its tightening cycle, Robert Shiller said.
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He told CNBC that earlier rate hikes pushed people to buy homes before borrowing costs rose even further.
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“So that’s been a positive influence on the market, but it’s coming to an end.”
More than 10 years of home price gains could soon come to a close once the Federal Reserve’s tightening cycle ends, Yale economist Robert Shiller told CNBC.
Since early 2012, the S&P CoreLogic Case-Shiller Index of home prices has climbed steadily. While it peaked in June 2022 and went on a downturn, it resumed its upward trajectory in January.
That’s as the past year’s Fed rate hikes boosted mortgage rates, keeping existing homes off the market, but also adding to homebuyer 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’s been a positive influence on the market, but it’s coming to an end.”
He acknowledged “unusual behavior” over the last six months in the index that he co-founded with economist Karl Case.
The housing market retreated, then began to go back up, Shiller pointed out, saying “people don’t know what to make of the ‘what is the Fed going to do?’ situation.”
That contrasted with the housing market’s traditional reputation for being more easily predictable, he added, especially after more than 10 years of steady home price gains that investors assumed would continue.
“But it may be coming to an end with the end of this interest-rate-rising cycle,” Shiller said.
His view runs counter to others on Wall Street who see the end of Fed rate hikes as bullish for home prices as borrowing costs moderate and bring back more demand.
For example, real-estate forecaster Barry Habib recently said that an upcoming slowdown would be enough to prompt interest rate cuts, easing mortgages and causing prices to rise 3% to 7% over the next few years.
But Ritholtz Wealth Management CIO Barry Ritholtz echoed Shiller’s view, saying rate cuts would actually bring housing costs down as higher rates have constrained housing supply.
Meanwhile, the Fed meets next week, and markets widely expect another quarter-point increase, which could be the last one of the current hiking cycle.
As the latest consumer price and producer prices have shown inflation cooling more than expected, Wall Street has started to abandon forecasts for additional rate hikes later this year.
Read the original article on Business Insider