Robert Shiller: US Home Prices Only Halfway to Fair Value Despite 25% Price Decline Since 2007 Peak. More Pain Ahead.

Source: Yahoo Finance - TechTicker

Our View:

• We could not agree more with Prof. Shiller's view. The housing market overshot slowly from 2000 to 2005 and overshot from 2005 to 2007 forming a huge real-estate bubble. Granted, the home prices have been declining since 2007. However, it has been only 2 years since 2007 peak. In addition, US cities in general still have extremely large inventory of unsold/unfilled livable unused lands and homes. Hence, more pain ahead on housing price (overshooting on the downside followed by very slow recovery) is a high probability. Real-estate investors with contrarian view that home prices are now cheap are likely to be disappointed with the decade-long decline and very slow recovery of the real estate market.
• US economy is now still halfway (or early) in negative feedback-cycle. Net wealth of US citizens and residents have been cut significantly due to significant decline in the stock market and real-estate market since late 2007. This dire situation may not recover for many years to come as many households have negative net assets and need to realize their losses at any price (whether they like it or not) unfortunatelly to finance their day-to-day living expenses due to increasing level of job losses. Hence even if the markets recover quickly (unlikely) and significantly (also unlikely), their net worth have been permanently cut causing permanent change in their spending habit (read: lower spending). We can only hope that the current US government administration can do miracle (also unlikely).
• Prudent investors and business people should focus on things that are truly the joy of life like their family, friends and their careers or businesses. If you don't have jobs/business, you had better looking for ones or starting your own business. Very painful economic situations lie ahead not only in US but in many other countries globally. No one can really save you but yourself (maybe your family and friends can help, if they are not in trouble). For the speculators (or people who think they are investors although they are not), ensure you keep reminding yourself to continuously excercise very high dose of common sense. Remember that anything times zero at the end equals zero.