Prof Sees Housing Bubble, Possible Recession

There is a bubble in U.S. home prices that is likely to burst and possibly be followed by a recession, according to Robert Schiller, a Yale University professor.Speaking at Flagstone Securities' Mortgage Finance Industry Summit in New York, the professor said a home price index he created shows that home prices have been "like a rocket taking off" since 1997, even though construction costs have not gone up that much. "The idea that a house is a great investment is a sign of the times," he noted. Responses to a survey conducted with another academic in 2004 indicate that people are expecting home values to rise over the next 10 years, Dr. Schiller said. Another indication is that more interest-only or adjustable-rate mortgages are being taken out. The professor said he sees a high likelihood of an eventual home price decline in Los Angeles and other "bubble cities," but "relatively little risk" in Milwaukee and other "stable cities."