As if things aren’t already bad enough – the economic recovery has been slow, unemployment is still near 10%, and the government is on the verge of defaulting on its debt for the first time in history – it’s starting to look more and more like the United States is going to slip back into a recession in 2012.
Obviously, there are lots of reasons this could happen (just see the three above… they’re the tip of the iceberg), but in an article published on Yahoo! Finance, Gary Schilling, author of The Age of Deleveraging (get it on Amazon, it’s a great read) and one of the most prominent economic bears, says it’s going to be the housing market’s next giant leg down that is the economy’s true undoing:
Shilling says the shock to trigger the next recess is “another big leg-down in housing.” (An asset class the Fed has not been able to reflate.) As those familiar with Shilling know, his forecasts are generally bearish. However, in his defense, Shilling was one of the few economists who correctly predicted the dangers of the subprime mortgage market and its impact on the broader economy.
The problem with the real estate market remains excess inventory. Based on Shilling’s research, there are 2 million to 2.5 million excess homes in the country — a supply that will take 4-5 years to work-off. The result: Housing prices will fall another 20% and underwater mortgages will balloon from 23% to 40%, he says.
With housing slumping again, Shilling says recession is coming to a town near you in 2012.
As much as it pains me to say it, I can’t disagree with Shilling. I’ve been very bearish on housing for quite awhile due to the massive inventory – both real and shadow – which will only push prices lower despite record affordability brought about by historically low interest rates (which might not be here for much longer if the government doesn’t get its act together).
So what do you think? Will we have a recession in 2012? Are housing pricing due to fall another 20%? Leave your comments below and please share the article using the Facebook and Twitter buttons.
- ‘DEPRESSING’: Will Housing Prices Drop 20 Percent in 2012? (abcnews.go.com)
- Gary Shilling: We’re Probably Headed For A Recession Next Year (businessinsider.com)
- Goldman says recession risk rising (finance.fortune.cnn.com)