http://roylat.com/2009/06/efficient-markets-versus-irrational-exuberance/ Commentary on a Mixed Up and Sometimes Backward World Thu, 04 Aug 2011 19:19:00 +0000 hourly 1 http://wordpress.org/?v= http://roylat.com/2009/06/efficient-markets-versus-irrational-exuberance/comment-page-1/#comment-171 Robert Shiller Expects Housing Prices to Continue To Fall | Roylat.com Mon, 08 Jun 2009 20:50:02 +0000 http://roylat.com/2009/06/efficient-markets-versus-irrational-exuberance/#comment-171 [...] I recently wrote about Robert Shiller’s unusual, for an establishment economist, ability to see the forces that influence market prices. He is also an expert on housing prices, as co-creator of the Case-Shiller index of housing prices. In an article in the June 6, 2008 New York Times, “Why Home Prices May Keep Falling”, he explains why the “efficient market theory”, which says prices should adjust immediately to the “rational value”, doesn’t apply to housing prices. He expects housing prices to continue decline, even if the economy begins to improve. His thought process is worth considering. Here are a few quotes. The whole article is worthwhile. [Long], steady housing price declines seem to defy both common sense and the traditional laws of  economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter. [...] [...] I recently wrote about Robert Shiller’s unusual, for an establishment economist, ability to see the forces that influence market prices. He is also an expert on housing prices, as co-creator of the Case-Shiller index of housing prices. In an article in the June 6, 2008 New York Times, “Why Home Prices May Keep Falling”, he explains why the “efficient market theory”, which says prices should adjust immediately to the “rational value”, doesn’t apply to housing prices. He expects housing prices to continue decline, even if the economy begins to improve. His thought process is worth considering. Here are a few quotes. The whole article is worthwhile. [Long], steady housing price declines seem to defy both common sense and the traditional laws of  economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter. [...]

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