Prophet of Housing Prices; Robert Shiller
ANCHORS: MARTIN BASHIR
REPORTERS: MARTIN BASHIR (NEW YORK, NY USA)
MARTIN BASHIR (ABC NEWS)
(Off-camera) Good evening, we begin tonight with the red hot real estate market and new
fears that the party's ending and fast. The government reports today that sales of new
homes dropped more than 10% last month, the steepest decline in almost a decade. Also, the
median price of a home dropped to just over $230,000. Americans have put so much of their
wealth into real estate and so we wanted to get a critical perspective tonight from one of
the nation's leading economists. Yale scholar Robert Shiller cried like Cassandra
during the late 1990s, that the dot-com boom was bound to go bust. He was right. And now
Professor Shiller is making some controversial new warnings about real estate.
MARTIN BASHIR (ABC NEWS)
(Off-camera) You say that the market is not necessarily stable, but everybody's investing
in condos in cities like New York. We've all been told that that's the best way to use our
hard-earned money.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
Yeah, well, I think you've been told the wrong thing.
MARTIN BASHIR (ABC NEWS)
(Voiceover) He said it about the stock market in 1996. And four years later, he was proved
right. Now he's warning that the real estate market is about to take a dive. And today's
new home sales figures seem to support his case.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
You have to recognize that we've been building a lot of houses. And that supply is coming
on. So we could see major price fall.
MARTIN BASHIR (ABC NEWS)
(Voiceover) Yale professor Robert Shiller says a form of mass hysteria has affected
the way we view real estate.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
The kind of enthusiasm that we've seen recently in real estate reminds me of the
enthusiasm that we saw for stocks in the late '90s. The scenery just changed a little bit.
MARTIN BASHIR (ABC NEWS)
(Off-camera) When you say enthusiasm, what do you mean by the manifestation of enthusiasm?
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
People say it's kind of obvious, isn't it? I mean, they keep going up every year. They
went up 5% last year, now they're going up 7%, now they're going up 9%. Hey, let's get on.
Some people thought skeptically of that and they didn't do it and they just didn't make
money. So it begins to think, what is the matter with me? Why didn't I get on to this
amazing money machine?
MARTIN BASHIR (ABC NEWS)
(Voiceover) Shiller used Alan Greenspan's famous term 'irrational exuberance"
as the title of his best-selling book that he wrote in 2000. A term he believes best
explains the current boom in house buying.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
Most people think they're smarter than the average person. Also, they get the sense —
they look at some data and they see the data going up and they say, hey, I can see a
trend, you know, I know a trend. And, and so people feel very confident of themselves. But
there's also a lot of confidence in a theory. And that's a theory that real estate always
goes up. They say there's only so much land and the population is growing and the world is
becoming richer and richer. It has to be a good investment. There's very much confidence
in that theory, misplaced confidence in that theory.
MARTIN BASHIR (ABC NEWS)
(Voiceover) In some parts of the united states, property values have doubled over the last
five years. But there are stories everywhere about investing in property and making money
and making profit.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
That's, that's the boom. That's what - prices have been going up. It is absolutely
phenomenal how well these investments have done. But investors have to learn not to chase
past returns, but to look to the future. And buying in after we've had tremendous returns
is not a good investment strategy.
MARTIN BASHIR (ABC NEWS)
(Voiceover) Shiller contends that long-term analysis of property sales reveals a
much more sober trend.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
Southern California went through a home price boom in the mid-1880s, and then Florida went
through a home price boom in the mid-1920s. And what were people thinking? If you go back
and read the newspapers, you know what they were saying? They were saying "the
population is growing, the land — we're running out of land. And you better buy now
or it's going to be too late." So they were thinking that in 1885 it was getting too
late. Well then their boom crashed in California. And, you know, it's happened again and
again. And we always think it's different this time. But, you know, I don't think it is.
MARTIN BASHIR (ABC NEWS)
(Voiceover) So what are the immediate prospects for home owners and sellers? Shiller
is less than confident about the future.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
I would say that there is a significant probability - significant possibility of, of
serious declines over years. It's not going to happen right away, I don't think. Over
years, in particularly in the glamour cities, the ones that have gone up so much. Miami,
Los Angeles. And there's many other examples.
MARTIN BASHIR (ABC NEWS)
(Voiceover) Americans have long believed that there's nothing more likely to increase in
value than real estate. Shiller says think again.
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
The idea that homes are a great investment is just wrong. Stocks have historically been a
phenomenally better investment. They've gone up historically for the last couple centuries
at 7% real a year. Do you know what homes have done? It's just about zilch. They, they do
not go up. This is one of the biggest misconceptions. It's just wrong. And people — I
don't know how the story got started that homes are such a great investment. It's just not
true.
MARTIN BASHIR (ABC NEWS)
(Voiceover) So what does Schiller suggest for anyone who wants to invest in the real
estate market? Would you encourage people to buy in condos and in buildings here?
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
I think renting is an increasingly attractive option these days.
MARTIN BASHIR (ABC NEWS)
(Off-camera) Really? Well, why should I spent money on rent when it's surely better for me
to invest in a property that I ultimately will own?
PROFESSOR ROBERT SHILLER (YALE UNIVERSITY)
No, what you want to do is investment in something that's going to go up, right? You can
take — instead of investing money in real estate, you can invest it in China, in
India, in Brazil, in Mexico.
MARTIN BASHIR (ABC NEWS)
(Off-camera) There are, of course, many economists who believe that real estate is very
different from technology stocks and that the market is just cooling, not imploding. Time
will tell who's right.
GRAPHICS: STAR TURN
MARTIN BASHIR (ABC NEWS)
(Off-camera) And shifting gears, just ahead on "Nightline," star turn, Oscar
nominee Natalie Portman on her controversial hit movie. Should a terrorist be cast as a
hero?
GRAPHICS: POPE PRADA
MARTIN BASHIR (ABC NEWS)
(Voiceover) And Pope Prada. Benedict's fashion sense is turning heads. The pontiff as
fashion plate, as "a sign of the times."
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