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Ouch!

U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.

The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.

MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down."

Shiller created the index, along with Karl Case, an economics professor at Wellesley College, back in the 1980's, so when they speak of a possible 5-year real estate slump (see the downturn from 1989-1994), they know what they're talking about.

From Bloomberg:

Shiller's 2000 book "Irrational Exuberance" predicted the stock market would slump and a second edition, published in 2005, said housing was in the midst of the biggest speculative boom in U.S. history.

A very enlightening Q & A at MSNBC with Shiller back in January 2005 can be found here. He discusses financial bubbles and what they look like:

A bubble means enthusiasm grows for assets and people don't see the limits, but there are limits. Actually, bubble is a misnomer. Even in the stock market. A bubble bursts in a flash, and seconds later it is gone forever. But [on] Oct. 28-29, 1929, the stock market fell 24 percent in two days. By early 1930 it was back to the peak, then there was a series of steps down to 1932. There was a boom in the stock market [from] 1932-37. No one remembers, but it was up just as much in the 1930s as in the 1920s. The reasons bubbles are so enigmatic is because you never know when they are over.

This guy knows what he's talking about...

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