Nouriel Roubini's Global EconoMonitor

CNBC – Roubini: ‘Housing Prices Can Only Move Down’

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.

6 Responses to “CNBC – Roubini: ‘Housing Prices Can Only Move Down’”

JackDecember 31st, 2010 at 5:37 am

How is it possible to have growth with so much global debt.Our planet cannot take corporate abuse any longer that is why the climate is changing so violently.We need honesty, commonsense, logic and compassion for all that breath and need water on this planet.We need the gold standard returned. It’s the only solution for a free market.Corporations and banks have to take responsibility for all this toxic debt and cruelty to nature.Once you factor in extreme weather conditions, peak oil, lack of clean drinking water.How much is anything really worth?Shoulder Head Shoulder coming.The global casino for vultures and people desperate for a quick buck without physically doing anything is over.Good luck and merry NY 2011.

kaninoDecember 31st, 2010 at 9:19 pm

From the book “AN AUTISTIC WORLD (1)”For many years the governments didn’t pay attention to the flamboyant housing market, accentuating the problem with their quixotic attitude, instead of looking for creative avenues to slow down the inevitable failure. Curiously, many people agree on the fact the one of the main reasons for the cause of the precipitously fall of the housing sector was that the homes were offered to individuals who placed little, or no down payment at all, to buy the property. In my opinion. that statement is not necessarily correct. Actually, offering homes to people in that way, was one of the greatest financial achievements on U.S. history. The problem didn’t reside in the amount of capital that an individual could place down while buying a home; but in who that individual was, and what he did for a living. Banks, for whatever reason, lost their commitment to themselves and society, based on balancing risk with pure common sense, while paying more interest to numbers than to people and their circumstances, thus getting lost in a labyrinth of financial fantasy.There is a good chance that the actual housing situation will never be resolved until the banks involved take responsibility and listen to their clients. The properties that have being legally foreclosed, must be administered by the banks either as temporary owners of rented properties in all variations, or actual sellers of homes, making the transactions without delay, because a bank that possesses thousands of empty houses is like an empty safe box. Otherwise, a punitive tax for postponing the possible habitation of those properties must be applied to avoid the depreciation of the entire market. The objective of repossessing a mortgage property, should be to sell it afterwards, but if nobody buys it the operation is senseless. Banks must be more receptive to the fact that an empty house is as productive as a community without ideas.

Steve van EmmerikJanuary 1st, 2011 at 2:12 am

An interesting new trend that is emerging is that the recent movements in house prices do not reflect the previous boom/bust cycle but rather the cities that are at the centre of the political/financial world are holding up while those that are at the periphery are falling. I blog more on this at

GloomyJanuary 8th, 2011 at 11:09 am

VICTOR SPERANDEO is a professional trader and money manager with over 45 years of experience on Wall Street. He worked alongside with George Soros at the Quantum Fund:”Can a nation financing 50% of its budget expenditures in the debt market grow itself out of a collapse? Is the reward likely to match the risk of owning government debt?Historical ChoiceWithout the support of foreign buyers, government spending will have to be paid with newly printed money, and the inflation consequences will be dire. Historically, nations default when the bulk of the debt is owed to other nations, but the U.S. still owes most of its debt to its own citizens.Gold trading at more than $1,350 an ounce, despite no appreciable increase in the consumer price index, is much more understandable when you realize that in periods of hyperinflation, gold tends to appreciate by 2,000% to 50,000% against a hyperinflated currency.Do the gold bugs know something we don’t? In time, the markets will surely say whether this is so. But unless drastic measures are taken to change the trend of deficits, or unless purchasers of U.S. government debt ignore all rational measures of risk, a psychological breaking point is approaching. When this happens, history tells us that hyperinflation is not far behind.”