20% Drop in Housing to Cause Recession in 2012, Says Gary Shilling

Below is an excerpt from a CNBC interview today:

Today's guest, Gary Shilling, President of A. Gary Shilling & Co. says another recession is brewing -- no matter what action the Fed takes. "Economic growth here and abroad is slipping, making a 2012 recession a distinct possibility," he writes in his July newsletter. And, "when you have slow growth it doesn't take much of a shock to throw you in negative territory."

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. (the % of underwater mortgages in Florida is already just below 50%…)

With housing slumping again, Shilling says recession is coming to a town near you in 2012.

Well, lets illustrate just what that would mean for us, here; Assuming a current home value of $250,000...a 20% drop by the end of 2012 would bring that market value down to $200,000. It would then take five straight years of consistent 5% annual appreciation  JUST TO GET BACK TO EVEN! (annual adjusted home price appreciation was 3.7% from 1968 through 2009). SEVEN years just to get back to even!

Mr. Shilling must finally be reading my blog...I have been sounding this alarm to my clients since the blogs inception.

If you are considering selling your home now or in the near future...most likely it will be better now than later. Call me at 561 602 1258, lets figure out what's best for your situation.

Thanks for reading,

Steve






20% Drop in Housing to Cause Recession in 2012, Says Gary Shilling | Fin - Daily Ticker - US - Yahoo! Finance