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Economist Gary Shilling: Plunging Home Prices to Spark 2012 Recession
MoneyNews.com ^ | 07/15/2011 | Forrest Jones

Posted on 07/15/2011 1:32:11 PM PDT by Rational Thought

Housing prices are due to slide another 20 percent nationwide and will throw the U.S. economy into a fresh recession probably sometime next year, says economist Gary Shilling.

"The problem is there are too many excess inventories. We estimate that there are 2 (million) to 2.5 million excess housing unit inventories over and above the normal working levels," Shilling tells Yahoo's Daily Ticker.

The United States normally builds about 1.5 million houses a year, so with such excess inventory lagging on the market, it's going to take around four to five years for normalcy to return.

"Excess inventories are the mortal enemy of prices, and we're looking at another 20 percent decline in prices," Shilling says.

A 20 percent decline would send the number of underwater mortgages — defined as owing more on a home than it's worth — rising to 40 percent from 23 percent today, which is enough to devastate an already weak economy.

That means the United States isn't merely going to double dip back into the recession from which it just emerged, but rather, it will go barreling into a new one.

(Excerpt) Read more at moneynews.com ...


TOPICS: Business/Economy
KEYWORDS: economy; housing; housingbubble
And this isn't factoring in the effects of Dodd/Frank.

"Change you can believe in"....if you love poverty.

1 posted on 07/15/2011 1:32:15 PM PDT by Rational Thought
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To: Rational Thought

I’m not sure I agree with all his details, but I agree the economy in 2012 will be lousy enough to defeat Baraq Obama.


2 posted on 07/15/2011 1:35:12 PM PDT by nascarnation
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To: Rational Thought

We are in a depression now so shilling is just shilling.

LLS


3 posted on 07/15/2011 1:36:10 PM PDT by LibLieSlayer ("GIVE ME LIBERTY OR GIVE ME DEATH"! I choose LIBERTY and PALIN!)
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To: Rational Thought
it's going to take around four to five years for normalcy to return.

4-5 years from now, baby boomers will be well into retirement, dying off, moving into old folks homes, downsizing, giving their homes to their kids. In short, the boomers will be dumping homes about the time this author thinks we'll work thru the excess inventory.

4 posted on 07/15/2011 1:39:52 PM PDT by umgud
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To: LibLieSlayer
You can have recoveries shaped like a U or a V. This one was shaped like an L.

You had the first shock, then a period of consolidation, and now comes the second shock.

When real estate collapsed in 1990, this was the pattern: a series of L's, drops followed by consolidations. Meanwhile the Fed was pushing on a string, and in 1995 the string finally caught. The result was the Internet bubble.

There will be many L's in this depression.

5 posted on 07/15/2011 1:41:24 PM PDT by Publius
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To: Publius

The economy cannot be turned around... it will have to die and we will have to start over as a Nation... if a civil war does not break out first. I truly fear that we are finished as our current Republic... I just do not see any way that either party will do what must be done to save it. I pray that I am wrong but I have been right so far.

LLS


6 posted on 07/15/2011 1:49:10 PM PDT by LibLieSlayer ("GIVE ME LIBERTY OR GIVE ME DEATH"! I choose LIBERTY and PALIN!)
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To: umgud
It will take a lot longer than 4-5 years. Meanwhile, the echo generation (boomer kids) are starting families of their own. So demand will pick up from that alone.

Big problem is whether they will have the ability to pay for it. Excess housing was built by the cockamamie notion that everyone (including millions of illegal aliens) had to have a home whether they could pay for it or not. The easy credit from the middle of the last decade has given way to hard credit-- nobody wants to loan money because they don't know how ObaMao' minions will change the rules tomorrow.

As long as that asshat, his puppet masters and the other puppets control political power, you will only see modest, if any, improvement. Things do wear out and people have to replace them, but they will put it off as long as possible.

7 posted on 07/15/2011 2:02:00 PM PDT by Vigilanteman (Obama: Fake black man. Fake Messiah. Fake American. How many fakes can you fit in one Zer0?)
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To: Vigilanteman

Keep in mind, banks have little say on lending guidelines at this point. The rules and procedures have all been implemented and are controlled by the Government.

But, you’re right. There is nothing easy about obtaining financing on a home at this point, which will continue to limit available buyers, further pressuring housing prices down.


8 posted on 07/15/2011 2:25:24 PM PDT by Rational Thought
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To: Rational Thought
The problem with Mr. Shilling's analysis is that he is making conclusions on the country as a whole, when the reality is that the real estate problem is far more acute and dire in the blue urban areas. The red state areas have a problem for sure, but the overwhelming bulk of the plunge in values and bad loans emanate from the large, democrat-run cities.

What we need to worry about is that this administration has done nothing to eliminate the real problem-the government subsidies through Fannie and Freddie that are still interfering with market forces.

I dabble in real estate and I can tell you that something good is going on, at least in the red area that I live in. Houses are selling again, and in most cases not at bargain prices. Capital seems to be flowing fairly well, unlike a year ago. I believe this is happening in spite of this administrations policies, certainly not because of them. Just my two cents.

9 posted on 07/15/2011 2:38:37 PM PDT by wayoverontheright (The Democratic Party is trying to end "the private sector as we know it".)
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To: wayoverontheright

There are only two areas in the Country I’ve heard some positives about the real estate markets....portions of Texas and area’s around Washington, D.C.

In other areas, the friends I know have little positive to say.


10 posted on 07/15/2011 2:51:15 PM PDT by Rational Thought
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To: wayoverontheright

Southern sates have taken it on the chin in this housing market. I live in a decidedly GOP area in Florida and it is also one of the hardest hit areas in the country. Southern states did not have the excess housing to accomodate the influx of new residents.


11 posted on 07/15/2011 3:00:52 PM PDT by roostercogburn
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To: umgud
The Boomers are already dumping homes. They were doing that BEFORE CRA did its worst, so you have both effects. Compound that with DEFLATION and it's pretty obvious where this is heading.

Like to note my ZIP CODE AREA for the first time in 4 years has not one home under bankruptcy management. NOT ONE.

Prices are up marginally ~ and have been improving little by little.

12 posted on 07/15/2011 3:06:12 PM PDT by muawiyah
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To: Rational Thought

SSDD


13 posted on 07/15/2011 3:07:54 PM PDT by toast
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To: wayoverontheright

I’m seeing more houses for sale lately in my area (eastern PA north of Philly). For a while there was nothing for sale. There has to be a lot of pent up demand out there, but I guess people aren’t feeling confident enough to step up in large numbers.

I think a lot of it has to do with lack of trust in Obama’s policies. If a Republican wins the presidency and keeps at least one house in Congress, I believe capital will cut loose again because then at least people will know we’re not going to willingly continue down the slippery slope.

It’s not going to get great all of a sudden, but as long as people feel we’re on an upward, rather than downward swing, large scale purchases and business hiring will improve.


14 posted on 07/15/2011 3:25:31 PM PDT by randita
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15 posted on 07/15/2011 3:26:10 PM PDT by musicman (Until I see the REAL Long Form Vault BC, he's just "PRES__ENT" Obama = Without "ID")
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To: Rational Thought

They are going to fall more than 20% and this is not a bad thing. It is a neccessary correction.

In the 1970s Americans were dold the notion that real estate prices could rise forever and become this great investment funding your retirement. That was a Keynesian lie. Real estate was going up because the boomers were coming into their own.


16 posted on 07/15/2011 3:30:57 PM PDT by MrEdd (Heck? Geewhiz Cripes, thats the place where people who don't believe in Gosh think they aint going.)
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To: LibLieSlayer

Pretty much I’m having to agree. We are in the third year of a Depression. The total amount of debt owed by the US is likely more than we can ever repay. At some point we will default. Or our currency will collapse from the Fed printing money and endless stimulus. I have come to the sad conclusion that the only way to restore the Constitutional Republic is just to have the collapse and try to put the pieces back together with a greatly reduced government. The current leadership is not going to do it.


17 posted on 07/15/2011 3:32:05 PM PDT by Georgia Girl 2 (The only purpose of a pistol is to fight your way back to the rifle you should never have dropped.)
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To: Rational Thought
A growing housing industry is the result of a sound economy -- not the cause. By the same token, a falling housing industry just tells us what we already know. I agree that housing will be in terrible shape and that the economy will be, too.

He's just got cause and effect mixed up.

18 posted on 07/15/2011 3:54:17 PM PDT by BfloGuy (Workers and consumers are, of course, identical.)
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To: Georgia Girl 2

GG2... it pains me deeply to agree with you... and I will fight until the bitter end... but I think you are right... that we are in for some serious pain and despair. I pray quite bit these days.

LLS


19 posted on 07/15/2011 4:40:04 PM PDT by LibLieSlayer ("GIVE ME LIBERTY OR GIVE ME DEATH"! I choose LIBERTY and PALIN!)
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To: LibLieSlayer

We have a 2-3 million home excess inventory due to speculation, bad lending. We have stagnant to declining wages and rapid inflation. People are unwilling to buy in many areas due to uncertainty. Maybe as long as 10 years to work throughnthis in some areas. But look for a major push back to the Fed regulators as they work to destroy the remaining jobs.


20 posted on 07/16/2011 5:52:02 AM PDT by rstrahan
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To: rstrahan
I hope all hell is unleashed on them! I certainly hope that we see that push back!

LLS

21 posted on 07/16/2011 6:06:49 AM PDT by LibLieSlayer ("GIVE ME LIBERTY OR GIVE ME DEATH"! I choose LIBERTY and PALIN!)
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To: MrEdd

I don’t believe real estate values dropping more is a good thing, anymore than a Dow dropping to 5,000 would be considered a good thing.

You’re correct in saying that most considered their real estate holdings an investment in their retirements. Whether right or wrong, the plunge in values has accomplished many losing most of their assets, that meaning no longer having anything to retire on.

Before the Fed printing presses began running 24/7, our monetary system was considered a finite system, meaning when someone lost or spent a dollar, someone else gained or earned a dollar. I wonder where all the dollars which have been taken or lost from the middle class via the housing plunge have gone?


22 posted on 07/16/2011 8:35:22 AM PDT by Rational Thought
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To: Rational Thought
The only bright spot in an otherwise dismal future.
Who besides real estate brokers, builders, banks, county tax collectors and insurance companies love home price increases?

If that other necessity, food, were treated the same way, it would instantly fix the overpopulation problem.

23 posted on 07/16/2011 6:52:57 PM PDT by Publius6961 (My world was lovely, until it was taken over by parasites.)
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To: rstrahan

There are lots of homes for sale in the Seattle area. Many of them are half-finished sitting next to muddy bare spots of the rest of the sub-division that halted midway through the project.

Lots of brand new, never moved into office complexes as well.


24 posted on 07/16/2011 6:58:27 PM PDT by 21twelve (Obama Recreating the New Deal: http://www.freerepublic.com/focus/f-news/2185147/posts)
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