Nobel Winner Robert Shiller Says There Is No Housing Bubble... Yet

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NEW YORK (TheStreet) -- Yale University Professor Robert J. Shiller has just won the 2013 Nobel Prize in Economic Sciences for his work on asset prices, along with Eugene Fama and Lars peter Hansen.

Shiller's study of how stocks and bonds are priced found that in the short-term markets are not always efficient and do not necessarily reflect fundamentals, because market participants are often irrational.

For those who closely follow the housing market, Shiller is a well-known name. He developed the widely followed S&P/Case-Shiller Indices that track home prices, along with Karl Case.

His book Irrational Exuberance in 2000 warned that the stock market was in a bubble, surrounding activity in the dot-coms. The 2005 edition of the book spoke about the bubble in real estate.

So if you haven't been paying attention to his views on housing, you might want to sit up and take notice now.

In recent months, Shiller has warned that some regions are looking "bubbly", referring to the dramatic annual price gains in cities such as Las Vegas and San Francisco.

But overall, he does not believe we are in a bubble..yet.

"Home prices right now are just reasonable. They are where they have been for a century in real terms. They are not high or low. They are OK," he said in a Bloomberg Television interview last week.

Home buyers do not appear to be displaying a bubble mentality either. Shiller just recently conducted a survey of recent homebuyers.

The short-term expectations were somewhat high, with respondents saying they anticipated a 5.7% increase, on average, in the next year. But in the bubble years of 2004, buyers projected an even higher 8.7% increase.

Moreover, buyers longterm expectations appear quite modest at 4.2% a year for the next 10 years. At that rate, if consumer inflation is modest at 2% a year, we wouldn't return to the December 2005 peak in real prices until 2031.

According to Shiller, people seem to be buying homes now because they think it is a good time to buy, with the economy gradually pulling out of a recession. They aren't buying because of expectations of a boom in housing, which is typical of bubble behavior.