Source: Portfolio.com

Professor Robert Shiller, a lightening rod of public discourse concerning anything housing, largely due to it’s emotional nature, pens an excellent piece in the New York Time’s Economic View column this weekend called Why Home Prices May Keep Falling.

This seems fly in the face “glimmering hope” and “green shoot” discussion beginning to emerge in the real estate conversation this spring as seasonal market forces took hold.

Heck, anything was better than last fall.

Apparently the federal government, via the famed “stress tests” doesn’t see housing prices stabilizing anytime before 2010 – makes sense since unemployment is projected to continue to increase through the end of next year, assuming the recession ends in 2009.

He frames the conversation around the fact that falling housing prices defy investment logic. That is:

>Such 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.

He reiterates what people in the real estate business know to be true…

>But something is definitely different
about real estate.

We still have excess supply, which will likely take a number of years to be absorbed even after the economy begins to stabilize. His reference to the 1990-91 recession resonated with me. Once it ended, housing prices didn’t stabilize for another four years.

In other words, housing markets are cyclical and housing markets are seasonal. That’s not a bad thing.