Nobel laureate economist Robert Shiller of Yale University warns that the stock and housing markets are overvalued and warns that they could head lower once again as “anxiety and fear” haunts investors.
"The correction in August brought the market down 10 percent," Shiller told Yahoo Finance.
"But it's halfway back up. It's still looking pretty frothy.”
Shiller said his valuation confidence index (the CAPE ratio) is above the historical norm of 17.
The ratio, which compares current stock prices to earnings over a 10-year period, currently measures 24.5, near the peak it reached before the financial crisis in 2007.
“On top of that, I have survey data showing that [a high percentage of] people think the market is overpriced,” he says. “This creates a little bit of fear that there could be a correction. When we saw the correction in August of this year, there was some anxiety thrown into people's hearts.”
Shiller advised investors not to completely pull out of stocks but don’t “be heavily exposed to the market, because it's worrisome at this point. Worrisome, but not horrible."
Shiller also warns that the housing market is on shaky ground. “I'm starting to worry a little bit, it's getting high by historical standards,” he observed.
“Usually housing has not been a great investment, owner-occupied housing,” he said. “Unless it gives you pleasure... I think people tend to overestimate the investment value of housing, especially at a time like this, when home prices are already high.”
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