The housing market is hot as home prices continue to rise, but Nobel Prize winning economist Robert Shiller predicts prices will eventually drop. "They'll come back down, not overnight, but enough to cause some pain," Shiller told Yahoo Finance Live.

The latest S&P CoreLogic Case-Shiller national home price index posted a 13.2% annual gain in March, the fastest pace prices have risen in more than 15 years. Last week, the National Association of Realtors (NAR) reported the median existing-home price in April was $341,600, up 19.1% from April 2020.

"This is not a market that collapses overnight," Shiller said. "It's less short run volatile than the stock market. But you can see that we're seeing price increases now that haven't quite been realized since those years just before the financial crisis."

Shiller said there is no "clean explanation" why the housing market is so hot. He expects it to continue another year or two driven by low interest rates and the COVID-19 pandemic work-from-home revolution.

But Shiller cautions that people are also driven by narratives and market sentiment. It's a topic he wrote about in his book "Narrative Economics: How Stories Go Viral and Drive Major Economic Events."

"I think it is some kind of irrational exuberance," he said. "People are having fun, and they will as long as prices keep going up."

'Aspects of a bubble'

Shiller describes the current housing market as having "aspects of a bubble to it." He compares it to the rapid home price increases seen in the years leading up to the Great Recession, which wiped out trillions of dollars of American family wealth.

Shiller said today's housing market looks similar to 2003. "There is excitement and people are talking and some people are bidding way more than the asking price and that becomes a narrative or a story."

But he tempers his comparison saying the current housing craze is different from the mortgage crisis that caused the last housing bubble to burst.

"So it's not the same as 2003," Shiller said. "It could be stronger. I think we have better protections, we have better supervision of lenders. So I don't know if we should be worried about 2007, 2008, 2009 happening again."

The current run up in prices, according to Shiller, "is disquieting" and he cites Phoenix as an example. "The biggest increase over the last year was Phoenix and home prices have gone up 20% in one year," he said.