Wednesday, December 8, 2010

US Housing Market Facing "Doom"

US Housing Market Facing "Doom"
Nouriel Roubini (aka Dr. Doom) Says Housing Market Double Dip Is Here

According to this article, Dr. Doom Predicts Another $1 Trillion in Housing Losses, Nouriel Roubini (aka Dr. Doom) says the following about the US housing market:
  • The country’s real estate problems are "underappreciated" and banks could face another $1 trillion in housing-related losses.
  • The United States "real estate market, for sure, is double dipping. The apparent increase in prices has been fully reversed, demand is falling, and supply is going to increase."
Here is a more direct translation of what Dr. Doom is really trying to say:
  • Foreclosures and other mortgage loan defaults will cost banks (and the US government and taxpayers) a lot more money.
  • The governments' ongoing and incredibly expensive effort to artificially prop up home prices has failed.
  • These foreclosures and other financially distressed homeowners will result in a large supply of homes for sale.
  • This large supply of homes for sale will drive down housing prices, hence the term "double dip".
My opinion is and has been (see my blog posts: The Truth About Home Prices and Home Prices Decline Again) that the US housing market is absolutely double dipping despite unprecedented, artificial and unsustainable government market propping. The cost of this housing market propping effort in terms of wasted tax dollars and inflation will be absolutely staggering and devastating to the US economy. The government needs to immediately get out of the housing market, stop artificially propping up housing prices and let housing prices be determined by actual supply and demand (i.e. let there be a "real" real estate market). While this will cause more short sales and foreclosures in the short term, it will ultimately stabilize the housing market, make homes more affordable and avoid the severe inflationary effects of the US government's current expansionist monetary policy (i.e. artificially low interest rates, expanded FHA lending, the US Treasury's 1.25+ trillion mortgage security purchase program, continued taxpayer funding of the losses incurred by Fannie Mae and Freddie Mac, the Federal Reserve's printing of money via QE1 and QE2, etc.). Regardless of what the government does or does not do, there will be a high level of short sales and foreclosures over the next several years.

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