We were lucky enough to hear Robert Shiller speak at the Distressed Real Estate Summit a few weeks back. We found most of what he said to be interesting, as we hope you will, too.

He began with speaking about the misquoted relationship between the economy and housing prices, noting that, in fact, the relationship is one between the economy and housing construction. He believes that this housing bubble is unprecedented in the US, and likely puts us in a difficult economic position for years to come. The current anomalies in the market are making it such that he doesn’t quite know how to weigh incoming data. While his old model would have been predicting price declines for years, he wants to give some of the “green shoots” data the opportunity to indicate a recovery, pointing to a bottom in March of this year.

“I don’t expect a full recovery over the next few years,” he said, to no surprise of audience members. Unlike in ‘74, ’79, and ’90, we’ve had a real depression scare during this down-turn. He sees two different mindsets out there: 1) “this could be a depression” and 2) “we’ve been through this before and we always come out of it”. There is a nagging fear out there in our collective consciousness that this is not just another recession.

Precisely during this economic climate, Shiller believes the administration should be setting the groundwork to create new, better economic and retail institutions, finding it astonishing that "we’ve allowed 15 million homeowners to be under water. In addition, he has launched two housing MacroShares ETFs on the NYSE: UMM takes a synthetic position in buying a home with 1/3 the money, while DMM is the equivalent of shorting the market. Brilliantly enough, anyone can use these ETFs to hedge their personal exposures to the real estate market.

Lastly, yours truly (that’s right) asked him a question.

Question: Since we are living in anomalous times, as you noted, based on your background in behavioral studies, how would you characterize the long term impact on people’s perception of home ownership in the US as the “American Dream”?

Answer: It’s truly a sign of our times to buy a house, and it’s a funny idea that doing so will make us money. The idea seems off. If you think about it, inflation adjusted housing prices were the same in 1990 as they were in 1890. Everyone talks about the scarcity of land in terms of the home purchase rationale. Land is scarce, yes, but it’s only a small component of housing prices; land has NOT been the bottleneck in this country; cities can continue to expand on agricultural land. The reason housing prices have not dropped is because construction has gotten better, and housing prices have generally tracked construction prices. In addition, the government has been subsidizing homes for the last 70 years and artificially stimulated the industry. The idea that housing will make you filthy rich is a strange anomaly.