CNBC NetNet -- by Ash Bennington
According to economist Nouriel Roubini, the housing market is in a double dip.
And negative Case-Shiller Home Price numbers out today only confirm that unpleasant truth.
'It's
pretty clear the housing market has already double dipped,' says
Roubini. 'And the rate of decline is stronger than in previous months,'
he said of the new housing data.
Aside
from below trend economic growth, there are two factors specific to the
housing market that are putting downward pressure on home prices.
The first factor is the expiration of federal home buyer tax credits for first time home buyers.
'If
you look at the data, Case Shiller has been falling every month since
the tax credit expired in May. Everyone who wanted to buy a home did so
by April,' Roubini said.
"That
tax credit stole demand from the future and its expiration led to
another 30% fall in home sales, pushing Case & Shiller lower for the
last few months," Roubini wrote in a text message earlier this morning.
The second factor
putting downward pressure on home prices is the ongoing chaos with
mortgage documentation, and the consequent suspension by banks of
mortgage foreclosure proceedings—which has actually worsened the
underlying problems in the housing market.
'There has been an effective moratorium on foreclosure,' said Roubini.
And the beginning of the end of that moratorium means more housing supply is about to become available on the market.
'The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,' Roubini says.
Both
factors, taken in concert, set up a scenario where market fundamentals
put downward pressure on prices: 'Supply will increase, demand will
drop,' Roubini said.
The Case Shiller Composite-20 Index, which represents the broadest measure of U.S. home prices in the survey, fell 1 percent on an adjusted basis during the September/October time period, based on data release earlier today.
All
20 Metropolitan Statistical Areas included in the survey showed
declines—reflecting a broad based, non-regional erosion of prices in the
housing sector.
But Roubini isn't yet predicting a double dip recession for the broader economy.
'The rest of the economy is recovering. Most of the numbers are consistent with a growth rate of 2.7 percent,' Roubini said.
But
that 2.7 percent growth is still below trend. 'So unemployment will
likely remain above 9 percent,' according to Roubini's analysis.
Roubini
adds that there are other ominous economic signs on the horizon
including: 'The eurozone shock, long-term structural deficits, and state
and local governments [operating near] bankruptcy.'
And, if homeowners begin walking away from their properties en masse, those negative trends might well pick up steam:
'12
million households are already in negative equity and 8 million more
have an LTV btw 95 and 100%. Thus even a 5% fall in home price will push
an extra 8 million in negative equity with risk of millions walking
away from their home—i.e. jingle mail,' Roubini wrote me in a text
message earlier today.
It's certainly a sobering scenario to contemplate as we head into the New Year.
All rights reserved, Roubini GlobalEconomics, LLC. Opinions expressed
on RGE EconoMonitors are those of individual analysts and may or may
not express RGE’s own consensus view. RGE is not a certified investment
advisory service and aims to create an intellectual framework for
informed financial decisions by its clients. This content is for
informational purposes only and does not constitute, and may not be
relied on as, investment advice or a recommendation of any investment or
trading strategy. This information is intended for sophisticated
professional investors who will exercise their own judgment and will
independently evaluate factors bearing on the suitability of any
investment or trading strategy. Information and views, including any
changes or updates, may be made available first to certain RGE clients
and others at RGE’s discretion. Roubini Global Economics, LLC is not an
investment adviser.
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