GARY SHILLING: Here’s Why There’s No Housing Recovery And Prices Will Collapse Another 20%

via Business Insider: 

Everyone thinks the housing market in the U.S. looks like it’s starting to bottom. gary shilling

Famed economist Gary Shilling is not one of them—you could call him notably bearish on housing.

In fact, he expects prices to drop another 20 percent from here and doesn’t think we will see a bottom in the market for another several years.

The main reasons Shilling is so pessimistic: There is a huge supply of excess inventory not being accounted for, and prices still have not fallen to anywhere near long-term historical averages.

In his monthly INSIGHT client newsletter, Shilling outlined his bearish housing thesis and used several charts to illustrate why he thinks there is no bottom in sight for the U.S. housing market, and more pain is ahead for American homeowners.

Note: Thanks to Gary Shilling for giving us permission to feature his charts.

House prices have been deflating for six years, according to the bellwether Case-Shiller index

House prices have been deflating for six years, according to the bellwether Case-Shiller index

Gary Shilling

Based on historical trends, there are still about 2 million excess housing inventory units

Based on historical trends, there are still about 2 million excess housing inventory units

Gary Shilling

That’s such a huge number because the number of new housing starts and completions before the collapse was only about 1.5 million per year

That's such a huge number because the number of new housing starts and completions before the collapse was only about 1.5 million per year

Gary Shilling

Meanwhile, the rate of home-ownership in the U.S. continues to plummet, adding pressure to excess inventories

Meanwhile, the rate of home-ownership in the U.S. continues to plummet, adding pressure to excess inventories

Gary Shilling

And there is a clear inverse correlation between the rate of home-ownership and the percentage of 25-34 year olds living in their parents’ homes (which is still skyrocketing)

And there is a clear inverse correlation between the rate of home-ownership and the percentage of 25-34 year olds living in their parents' homes (which is still skyrocketing)

Gary Shilling

Many point to measures of decreasing supply as bullish for housing…

Many point to measures of decreasing supply as bullish for housing...

Gary Shilling

…but those numbers don’t take into account around 5 million delinquent mortgages and foreclosures that add to supply…

...but those numbers don't take into account around 5 million delinquent mortgages and foreclosures that add to supply...

Gary Shilling

…and they also don’t include all of the vacant units that aren’t currently listed for sale

...and they also don't include all of the vacant units that aren't currently listed for sale

Gary Shilling

The correlation between new listings and sale prices reinforces the idea that falling prices keeps sellers away from the market

The correlation between new listings and sale prices reinforces the idea that falling prices keeps sellers away from the market

Gary Shilling

The proportion of mortgages originated between 2008 and 2011 that are seriously delinquent (90+ days) is rising

The proportion of mortgages originated between 2008 and 2011 that are seriously delinquent (90+ days) is rising

Gary Shilling

Home prices need to drop another 22% to reach their 1890-2000 long-term average

Home prices need to drop another 22% to reach their 1890-2000 long-term average

Gary Shilling

Mortgage modifications will only work if they include federal mortgages – the bulk of them – which the government has been reluctant to do

Mortgage modifications will only work if they include federal mortgages – the bulk of them – which the government has been reluctant to do

Gary Shilling

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