For many across the U.S., the real estate market has been the latest get-rich-quick craze. Indeed, hordes of homeowners and investors have become wealthier as they watched their home values increase or their investment properties sell for multiples of what they paid for them just a few years ago. But the run-up in real estate may be ending. Federal Reserve chairman Ben Bernanke last month said the housing market is "cooling." Around the same time, former Fed chairman Alan Greenspan told the Bond Market Association that the U.S. housing market's "extraordinary boom" is over.
While few would dispute these assessments, what's in store for real estate is difficult to predict. "I don't think there's a widespread bubble in housing markets in the U.S.," says Joseph Gyourko, a real estate and finance professor at Wharton and director of the school's Zell/Lurie Real Estate Center. He acknowledged that 2005 was "frothy" and that "in niche markets like condos there are crashes absolutely waiting to happen." He sees no "great collapse" on the horizon, though. In Gyourko's view, local economic factors -- such as job growth and supply restrictions on residential real estate -- justify the hike in real estate prices in many cities, particularly on the coasts.
Robert Shiller, an economics professor at Yale University and the author of Irrational Exuberance, which anticipated the stock market crash of 2000, disagrees. In his view, the recent, unprecedented spike in U.S. home prices reflects the damp, invisible hand of investor psychology. What's been driving up the price of single-family homes, he notes, is "like the psychology of the stock market in the 1990s -- and it is probably very unstable."
Both men delivered these comments at a conference earlier this month on Innovation and Risk Management in Real Estate Markets, organized by the [continue]
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