Robert Shiller’s piece in the New York Times today on “Why Home Prices Will Keep Falling” misses an important point. While I agree with him that real estate is different than any other asset, there’s clearly some irrational “anchoring” going on. This is a term that behavoral economists like Shiller use to refer to a price that people set in their minds. For those who are mired in the boom years, for example, they think that their home is still worth the market value at the height of the bubble. Now, in 2009, many of them are in massive denial and can’t reprice to the new reality. They can’t accept that the 2006 prices were an aberration, the result of overspeculation and a flood of cheap money. The home market won’t rebound until it finds a floor. That means foreclosures have to end, which have been driving prices downward in most large markets. Why buy a home for a listed price when you know something similar will come on the market at a 20% to 40% additional discount? Until a new level of pricing is firmly cemented in buyers’ minds, we could be in for a long summer and fall in home markets.