Additionally, Americans' perceptions about the acceptable size and quality of homes have increased. Homes haven't necessarily increased in price; instead, Americans are living in larger homes that feature more amenities.

Shiller also discussed two psychological theories that contributed to today's subprime loan failures: brand new market influences that make outcomes impossible to predict, and group decision making dynamics.

"When you have a group of leaders together, trying to make a decision in an environment of uncertainty, there's a tendency for a mistaken consensus to occur. People become afraid to express intuitive judgment. This effect is especially heightened when you can't prove your point," Shiller said.

The economist sparked interest in the audience when he mentioned the potential for a futures and options market that hedges on real estate.

"The real estate market needs more hedging vehicles. Right now, anyone in the construction industry is in the business of speculating home prices. These derivative markets will be useful for developers and mortgage lenders to leverage their risks," he said.

Currently, only $85 million is invested in speculative real estate markets, but Shiller said he thinks the investments hold significant potential for both foreign and domestic investors.

When asked about the future of the real estate market, Shiller was noncommittal, referring to his aforementioned new market influences that make outcome predictions impossible.

Additionally, the psychology of finance tends to be optimistic, he said."When you feel an identification with something, you want to believe it will turn out well," he said, adding, "Honestly, it doesn't look like the market will continue to go up to me."