Robert Shiller, co-founder of the S&P/Case-Shiller Home Price Index, has been issuing a warning the past couple months: Don't get snookered by rising home prices. In short, Shiller is skeptical that the price trend will last.

Shiller's doubts center on the Federal Reserve, which continues to purchase U.S. Treasury notes and bonds and mortgage-backed securities at the unprecedented rate of $85 billion a month. The Fed's purchases, which are financed with newly minted money, have kept mortgage rates low and liquidity (money supply) high.

This has obviously been good for housing, but Shiller's concern is that the Fed could be creating another bubble. We've wondered the same thing too. A lot of money is flowing into housing. Is that money distorting the market?

We think there are a couple extenuating factors. For one, the housing market is still operating at a sub-optimal level (sales and construction) compared to historical norms. And though mortgage rates are at multi-decade lows, many people are still unable to take advantage of them, thus keeping demand constrained (though we don't necessarily view this as a positive).

This is an unusual, even unprecedented, market, to state the obvious, but it's not a bubble market, and we don't expect it will become one any time soon.

Courtesy of Jessica Regan.

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