Is the Real Estate Sky Falling?! Economist Weighs In…

People often wonder if the “bubble” is going to burst, making home prices tumble.

Sellers worry because it could mean one of (if not the) biggest asset they own could take a beating. Buyers on the other hand hope for some glimmer of deals on the horizon, and maybe a little less competition in the market.

Well, according to a recent article from Yahoo, home prices will drop in the near future and “cause some pain.”

At face value, that sounds like good news for buyers, and painful news for sellers. But let’s unpack what’s being said in that article a little bit more thoroughly. Economist Robert Shiller is cited in the article saying:

• Prices will eventually drop, and that “They’ll come back down, not overnight, but enough to cause some pain.” (Key words being “eventually” and “some”.)
• He also stated that there’s no clear explanation for the “hot” market, but “expects it to continue for another year or two.”
• Lastly, he said that the current market is different from the crisis that caused the last bubble: “So it’s not the same as 2003. It could be stronger. I think we have better protections, we have better supervision of lenders. So I don’t know if we should be worried about 2007, 2008, 2009 happening again.”

In a nutshell, he’s saying prices will eventually come down, but not for a while, and maybe not all that much.

So, how does this affect you, and what should you do?!

• If you’re a homeowner who wants to sell your home and cash in on your equity for good (i.e. move in with family, to a retirement home, assisted living, or rent), you might want to consider selling in the next year or so, before a dip in prices may occur.
• If you’re a homeowner and have no plans on moving in the near future, say 5-7 years, none of this matters really. Historically, prices go down and then back up and ultimately higher than before. So, no worries.
• If you’re a buyer thinking about waiting for prices to drop, you may want to re-evaluate that approach. Rates are still historically low, and prices may not drop for another couple of years. And, when they do drop, who’s to say they won’t drop below the prices you’re seeing now? They could just drop to levels we haven’t even reached yet, but will see in 2022 or 2023.