Future Nobel Laurelate Robert Shiller has an interesting article in today’s NYT about a recent shift in the psychology of home buyers.
He and Wellesley prof Karl Case conduct an annual survey of what home buyers are thinking:
“On average over the next 10 years, how much do you expect the value of your property to change each year?”
The average answer among 311 respondents in 2009 was an increase of 11.2%. The median response — with half above, half below — was 5 percent, also high. That sounds rather like bubble thinking.”
Its worth noting a few things about surveys in general, and this survey in particular:
• Forecasting Failures: Humans are especially bad at forecasting the future. Not only do they lack the skill set to rationally think about the factors impacting prices, they tend to engage in all manner of error-laden, faulty thinking;
• Zero Objectivity: Asking new homeowners about home prices is a kin to asking a new car buyer about the future reliability of their vehicles as they drive from the dealer. They sure hope its reliable, just as buyers hope prices don’t go down.
• Past Failures: Trying to discern future price movements based on surveys of recent buyers is a fatally flawed endeavor. The 2008 Case-Shiller survey had an average expected yearly increase in home values of 9.5% a year — at a time when prices were falling 20% per year. (Median was also 5%)
The bottom line is that surveys often reveal more about the questioners and questionees than they do about the subject matter at hand.
A Bounce? Indeed. A Boom? Not Yet.
ROBERT J. SHILLER
NYT, October 10, 2009