| Gary Shilling
is even more pessimistic about the 2009 prospects for housing
prices than Yale housing guru Robert Shiller.
Shilling says home prices will drop 20 percent from here —
worse more than Shiller's recent forecast of a coming 15
percent drop.
Home prices are already down 25 percent in the past year on
the S&P Case-Shiller index.
"It's excess inventory, pure and simple,” Shilling told
U.S. News and World Report.
“That’s a mortal enemy of prices in any goods-producing
sector,” particularly housing.”
“You just have all these excess inventories coming out of
the woodwork as speculators throw in the towel and people
foreclosed out of houses double up.”
Potential buyers are holding back in the hopes of buying at
even lower prices, Shilling says, and that restraint will
serve to lower housing prices too.
Shilling says the existing 1.5 million home inventories
represents about a full year’s worth of housing supply over
the long term.
“There are just not that many creditworthy borrowers out
there lining up to buy houses,” he notes.
Even the push to lower mortgage interest rates below 5
percent won’t work because the decline in housing values
effectively makes that rate 26 percent, trumping any advantage
that a lower interest rate might create.
The Fed has been buying up billions in mortgage-backed
paper in order to drive down interest rates. Its target is
closer to 4.5 percent than the already historically low 5.1
percent.
“Housing starts and building permits are in free-fall,” NYU
economist Nouriel Roubini recently told Bloomberg.
“There’s no bottom.”
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