Despite the 0.3 percent gain in the S&P 500/Case-Shiller Home Price Index in January, the outlook for housing is murky going forward, according to index co-founder Robert Shiller.
The index began a strong recovery a year ago, but now the rebound has weakened, he says. “It’s kind of iffy now – the outlook,” Shiller says.
“The big cloud on the horizon is the withdrawal of government support for the housing market,” he recently told Bloomberg.
He was referring to the March 31 end of $1.25 trillion of mortgage securities purchases by the Federal Reserve.
“People in many places are getting worried about that, so they’re hesitant to buy.”
As a result, “There’s a real concern about a double dip in the housing market and the economy,” Shiller pointed out. He sees a 50 percent chance of a relapse in the housing market.
“That’s very high because the only other post-war example is the 1981-82 recession.”
The housing market’s fragility would make it wise for the government to continue the $8,000 new homeowner tax credit that expires April 30, Shiller says.
“You don’t make drug addicts go cold turkey,” he told The New York Times.
“The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house.”
The best solution would be to phase out the credit gradually, he says.
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