Reflections on Renewed Housing Recession

I've got to agree with Gary Shilling. He says housing prices will drop 20% next year and cause renewed recession in 2012. So, if you think things are bad now, just wait. There's more to come.

Gary Shilling is an author and real estate economist. He's done the research and conducted the studies. He says that the housing market has an excess of inventory that will take at least five years to clear.

Banks lose

Banks own most of the homes that are up for sale, although not all. Homes that sell at all these days are mostly foreclosures. Their prices are low because the banks want to bank, not be in the home-selling business.

When a home is priced low enough, it will sell. By lowering the prices to basement bargain levels, the banks' inventory of homes moves, but slowly. Except for the buyers who got a steal, both sellers and bankers lost on the deal. Those who lost their homes lost the most and have nowhere to live.

People lose

Not only banks, but also regular people want to sell their homes. Their experiences are similar, but they tend not to lower the price for their homes as much as the banks do with theirs. The reason is that people tend not to want to sell their homes for less than they paid.

Unlike banks' willingness to take a loss, people aren't anxious to do that at all. Home sellers will either leave the home up for sale for a long time to get their price or not put it up in the first place. Either way, home owners who can afford their homes wind up keeping their homes, like it or not.

Folks in my own neighborhoods have demonstrated that practice. On occasion, some bite the bullet and sell dramatically low, selling their homes in the same way that banks do--at a net loss. For these folks, getting something is better than nothing, if the need to move is compelling enough

Inventory builds

At the same time, some homes in the neighborhood have been for sale for several years. So, when Gary Shilling talks of selling a home in next five years or so, he's not talking about the folks who have waited four years already.

So, those of us wanting to move on will have to stay put. Those of us wanting a bargain may find one, but it will be at somebody else's expense. Those of us who have wanderlust for where we call home have had the luster fade to lull. The housing market is dying, if not dead already, with veritable mummification coming next year, according to Shilling.

Source:

http://finance.yahoo.com/blogs/daily-ticker/20-drop-housing-cause-recession-2012-says-gary-161445494.html