Posts tagged: Robert Shiller

Why Your Home Is Not A Good Investment?

“A recent  Gallup poll shows that Americans now believe housing is the best long-term  investment, beating out stocks, bonds, and gold. They might be right, only because the average stock investor does so poorly that a home may indeed be their best investment. But housing has historically been a  terrible bet for people who think it will return more than inflation. To show  you what I mean, I have to tell you about my visit to Yale economist Robert Shiller’s office a year ago.

Shiller — who won the Nobel Prize last year— is regarded as the world’s  foremost housing expert. He has married historical data with deep insight into  human psychology to offer some of the best housing analysis anyone’s ever  produced. “If you look at the history of the housing market, it hasn’t been a good  provider of capital gains. It is a provider of housing services,” he  explained.

By that, he means a home gives you a place to live, a place to sleep, a place  to store your stuff. But that’s it. Americans believed — and still believe — that the value of  their home will increase above the rate of inflation. And that, Shiller says, is wrong. Debunking the notion that housing is a great investment is one of his favorite  topics.”Capital gains have not even been positive. From 1890 to 1990, real  inflation-corrected home prices were virtually unchanged.”

“Well, I think you have to reflect on the fact that it’s done it before. Home  prices declined for the first half of the 20th century Read more »


CAPE today: how predictable is the ratio?

Nobel Prize-winning economist Robert Shiller made a name for himself when he  predicted the dotcom bubble using his  now-famous CAPE ratio. CAPE is short for cyclically-adjusted price-earnings ratio. It’s calculated  by taking the S&P 500 and dividing it by the average of ten years worth of  earnings.  If the ratio is above the long-term average of around 16, the  stock market is considered expensive. Shiller has argued that the CAPE is remarkably good at predicting returns  over the period of several years.

As the stock market has drifted to all-time highs, prices have outpaced  earnings growth and the CAPE his risen to a notable 24 times. Some folks warn that that this means the odds  of a crash have risen significantly. Check it out:


cape chart

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