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Home buyers are losing confidence in the housing market

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Economists Robert Shiller and Karl Case, experts in home prices, have been digging into the psyches of recent home buyers to figure out how they form expectations about home values.

Each year since 2003, the duo sent surveys to a random sample of 500 buyers in each of four metropolitan areas: Los Angeles and San Francisco (hot markets), Boston (a  "cold" post-boom market) and Milwaukee (a relatively stable market.)  They asked each buyer, among other things, to predict what would happen to the value of his or her home over the next decade.

Back in 2005, during the housing boom, expectations were extraordinarily high for future home price increases. "People thought they were going to make a bundle," Shiller said during a call with reporters this week about home price trends. But the expectations have been trending downward ever since, even though recent buyers ought to be an optimistic bunch.

In a 2014 survey, buyers expected a 3 percent increase each of the next 10 years, and that's less than the prevailing mortgage rate, Shiller said. (He cited a yet-to-be-released survey from Pulsenomics for this year's results.)  "They're not thinking that this is an exciting investment," he added.

Here is a chart Shiller, an economics professor at Yale University, provided that chronicles the results of the expectation surveys.  His grim conclusion: "We're losing our general sense of optimism about housing. It's percolating throughout the nation."

Earlier this week, the closely-watched Standard & Poor's/Case-Shiller index (unrelated to the Shiller and Case’s expectations survey) found that 2013 was a banner year for home price appreciation, with an 11.3 percent year-over-year gain in the fourth quarter. But the index also showed that the gains been losing momentum in recent months. .

In a survey released this month by Pulsenomics, which regularly polls more than 100 real estate experts and economists, respondents said they expected nationwide home value appreciation of 4.5 percent this year on average, a pace that exceeds historical norms. They also expect a steady slowdown though 2018.