Economy at tipping point, double-dip risk: Shiller

NEW YORK Thu Jun 9, 2011 4:57pm EDT

Yale University Professor of Economics Robert Shiller speaks during a presentation at the American Economic Association Conference in Atlanta, Georgia, January 3, 2010. REUTERS/Tami Chappell

Yale University Professor of Economics Robert Shiller speaks during a presentation at the American Economic Association Conference in Atlanta, Georgia, January 3, 2010.

Credit: Reuters/Tami Chappell

NEW YORK (Reuters) - Recent housing and employment data suggests the U.S. economy is at a tipping point where a double-dip recession is possible and home prices could have much further to fall, a veteran economist said on Thursday.

Robert Shiller said the recent uptick in unemployment is not yet enough of a sign as to which way the recovery is heading. But if unemployment continues to rise in the coming months, it could suggest another recession.

"Whether we call it a double-dip or not, I think there is a risk," Shiller told Reuters Insider television in an interview.

Likewise, data showing U.S. home prices fell into a double dip in March could prove to be either a seasonal effect over the winter months or part of a downward trend.

"My gut feeling is we might see a continuation of the decline" in home prices, Shiller said earlier on Thursday at a Standard & Poor's housing summit.

He added that a 10 percent to 25 percent slump in real home prices "wouldn't surprise me at all," though he cautioned that was not a forecast.

A glut of houses for sale, ongoing foreclosures, tight credit and weak demand have kept the housing market on the ropes even as other areas of the economy start to recover.

Those headwinds have led the National Association of Home Builders to say the market will see no improvement this year.

"We now think single-family housing starts will probably be no better than they were in 2009, which basically tracked as the worst year on record," Jerry Howard, chief executive at NAHB, said during the summit.

Howard said their economists expect a slight uptick next year and a more robust housing market in 2013.

BOTTOM UNCLEAR

As for when home prices might bottom, Shiller told Insider that was unclear and it was possible prices could slide for 20 years.

"We've seen five years of decline already since the peak in 2006 and I don't see evidence that we're coming out of it," he said.

Shiller, known for warning about bubbles in the stock market and housing market, is also the co-founder of the S&P/Case-Shiller home price index. Last week the index showed single-family home prices in March slumped to lows not seen since March 2003, falling below the previous crisis-era bottom set in April 2009.

That report, along with other data, including grim jobs figures and a slowdown in manufacturing, suggested that the economic soft patch seen in the first quarter of the year could be more protracted.

Home prices had been supported last spring by a tax credit, but the housing market has struggled since the credit expired.

Speaking at a separate housing conference in Cleveland, Federal Reserve Vice Chair Janet Yellen said there was no quick fix.

"Looking forward, I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market," Yellen said. Even once the housing recovery takes hold, it will be "long and drawn-out", she said.

Nonetheless, she pointed to steps being taken to heal the market, including developing uniform national servicing standards, and giving banks incentives to participate in stabilizing communities.

(Additional reporting by Kristina Cooke in Cleveland, Editing by Chizu Nomiyama)

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Comments (12)
breezinthru wrote:
Okay. I’m baffled. Look at this article’s headline: “Economy at tipping point and housing bad: Shiller”. At this moment, this first article in the Global Markets section is: “Wall Street edges higher on trade data, mood fragile”.

Curiously, the Dow is 12,133.74 right now, up +0.70%. The same kind of thing was going on in 2007. There was no good reason for the stock market to keep increasing in value but it did anyway. I think the anomaly is due to a lot of money looking for a place to get invested, a supply and demand effect that mindlessly drives up stock values.

I guess we’ll see soon enough if the optimism is warranted, but I’m thinking there is still a lot of downside left in this market… perhaps this downside will even dwarf the 2007 downside.

In 2007 the world’s markets were euphoric and smoking hot, thus they were able to somewhat cushion the fall. Now the world’s markets are on life support. A tipping point crisis would now would be devastating.

Nearly all of the financial news around the world is deeply negative. And the stock market goes up? It seems that the world’s money managers are feeling mindlessly optimistic with everyone else’s money… again… just as they were in 2007.

Jun 09, 2011 11:00am EDT  --  Report as abuse
limapie wrote:
We have major European banks heavily invested in the debt of some sinking European countries (Greece, for example.) The economist all
know that (especially Greece) will fall off for certain, but what everyone is hoping is that the heavily invested banks will recover enough to save themselves and thus everyone else whose on the fence or just above the fence. Why do you think Germany was talking to Obama
just a day or two ago? The US is just hanging on the fence by a thread.

Home prices, home prices, it is country debt that is the biggy, the dominoes all lined up ready to flop.

Jun 09, 2011 11:17am EDT  --  Report as abuse
Dahc wrote:
Double-Dip? What is this? Bing and Jerry’s??? We haven’t cleared any of the first hurdles yet! We’re heading towards a Depression.

Jun 09, 2011 12:50pm EDT  --  Report as abuse
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