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Nouriel Roubini: The Housing Debate: "it is not going to be okay"

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February 03, 2008 – Comments (5) | RELATED TICKERS: GLD , SRS , SKF

The Housing Debate: Bull vs. Bears

Monday, January 14, 2008 | 02:30 PM

If you missed the Real Estate Connect NYC 2008 debate on the impact of Housing last week, it is now available online. (Broadband suggested).

The video is 54 minutes and it is worth watching and has some funny moments: 

Highlight Nouriel Roubini speaks at: 

33:51 -  "the contagion has been been massive"

39:16 - "consequences are going to be severe...it's NOT going to be okay, it will be dramatic lots of people are going to lose jobs, including lots of people here"

PROFESSOR NOURIEL ROUBINI --->

Nouriel Roubini, professor of economics at New York University's Stern School of Business, is calling it the worst housing recession since the days of the Great Depression. Roubini said he believes that a U.S. economic recession began in late 2007 and "is going to be much more severe" than economic recessions earlier this decade and in the early 1990s, with credit problems spreading across the financial system and impacting all forms of home loans, commercial real estate loans and even auto loans, among other forms of financing.

"What we're worried about today is a systemic financial crisis. This is a severe, massive problem. It's going to take years to adjust," said Roubini. Home prices have already fallen 15 percent to 20 percent in some areas from their peaks during the latest housing boom, with housing starts tumbling 40 percent and sales sliding about 50 percent, he said.

If prices fall 30 percent from the peak, that would represent about $6 trillion in lost value and millions of homeowners with negative equity, he said.

http://bigpicture.typepad.com/comments/2008/01/the-housing-deb.html#trackback

http://www.typepad.com/t/trackback/763/25024432

http://www.urbandigs.com/2008/01/bull_vs_bear_debate_at_real_es.html 

5 Comments – Post Your Own

#1) On February 03, 2008 at 8:43 PM, dog1350 (76.24) wrote:

A fine mess we've gotten ourselves into.I'm betting Ambac and MBIA get bailed out.Housing, well, George will let us take the 6 trillion loss.Lucky for me that CAPS has shown me to stay out of this market.Ron Paul is a visionary but too few Americans have vision.What a mess.

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#2) On February 03, 2008 at 10:08 PM, camistocks (< 20) wrote:

i watched the "discussion" but frankly, those were three bears against one bull, not very fair...

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#3) On February 04, 2008 at 10:48 AM, floridabuilder2 (99.26) wrote:

even if you bail out ambac and mbia....  the amount of $ lost in housing value and people with negative equity is staggering and there are no fixes for that

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#4) On February 04, 2008 at 12:22 PM, cabuilderboy (88.75) wrote:

Guys like Nouriel and Richard Thornberg (formerly UCLA Anderson School of Business) finally have their day in the sun. They were crying "wolf" for years before the downturn, and now they get to gloat. Sure prices are down, but go ask anyone in CA who owned a home prior to 2001 how thier equity has held up. Do the math, up 100% less 30%= 70% increase for doing nothing more than enjoying a home with your family.

People made millions while these guys were crying foul, and now they get to pretend like they are genuiouses.just for being contratian. 

I predict the market will come back and homebuyers will be rewarded handsomely. At some point I will be right. I can't wait to get on TV and take my glory.

 

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#5) On February 04, 2008 at 5:49 PM, abitare (34.56) wrote:

ALCON,

Thank you for the replies.

dog1350,

There is a push for the government to bail / back the bond insurers.  However, it would be unfair to those who held onto cash or have been smart with their money, aka Buffet. The government would be hurting Buffet by backing Ambac or MBIA. 

camistock,

To find a real estate bull in this market? Even David Lereah would not be that dumb or dishonest to shill for real estate at this time. Plenty of real estate sites to ask about bulls:

http://housingpanic.blogspot.com/ 

http://macromarkets.com/csi_housing/MSA/detroit.asp

fb,

Concur with you and Nouriel Roubini.

cabuilderboy,

People who bought in 2001 might be okay as long as they can keep their jobs. High unemployment is coming.  

Babe Ruth led the league in strike outs. But he is known for  his home run record. Is Babe Ruth good at baseball? It depends on how you gauge his success.  

This housing bubble / bust has been played out before in Japan.

From Mish's Global Economic page

Differences between Japan and the US

Look for steeply rising unemployment in the US. One of the consequences of those debt write downs in the US, is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will.

Enormous consumer debt makes the problem the US faces far more severe than the problem Japan faced. Consumer debt that that cannot be repaid will be defaulted on. Rising unemployment, will further exacerbate mortgage related problems and credit card related problems.

Consumption continued in Japan because of savings. The US will be forced to cut back on consumption and increase savings.

Global wage arbitrage is a far bigger economic force now that during the bulk of Japan's deflationary years.

Japan had the benefit of a global internet boom followed by a global housing boom to help the economy. The US is facing a global contraction of the housing boom.

Most people in the US "own" their own home. The skew of those deep in debt is huge. 1/3 of Americans owe nothing on their homes. The debt is carried by those who can least afford to carry that debt in an economic downturn.

Japan had a huge valuation problem in real estate. The US not only has a huge valuation problem, commercial real estate is also woefully overbuilt.

Those how argue "It's Different In Japan" need to weigh the impact of those differences. The pent up deflationary forces in the US are such that Deflation American Style figures to be far worse than Deflation Japanese Style.

Here is one similarity: Fiscal stimulus failed in Japan. Fiscal "Stimulus" Is Doomed To Fail in the US. The consequences to the US will be severe.

"They were crying "wolf" for years before the downturn,"

Yep, a trend does not reverse easily, in either direction. Are they wrong for being early?

Alan Greenspan is consulting for three different hedge funds that profited from the housing collapse. It performed poorly in 2006 but in 2007:

Last year, one of its credit hedge funds rose by about 590% thanks to bets that the housing market would weaken and that mortgages given to borrowers with sketchy credit would drop in value.

"I predict the market will come back and homebuyers will be rewarded handsomely."

No, no, no, no, noooooooo.....  the bubble has popped and there is no re inflating it. Japan's market was cut in half and has not recovered in 17 years. The NASDAQ has not recovered in 7.  Watch the video I posted and argue with the professor's points.

Unemployment, foreclosures, excessive housing supplies, tighten lending, 210 mortgage banks have gone bankrupt, the bond insurers are in trouble,  solvency issues at many of the biggest banks.  This is going to get a lot lot worse before it ever gets better.

In 30 years, it might turn around? But who is going to buy all the baby boomers houses?

I lived in Europe a couple of years. There are some amazing historic properties that are abandoned. Why? People can not find jobs to renovate or pay the taxes on the property.

Here is what I think Las Vegas and some of the US suburbs are going to look like in 10-20 years:

http://www.abandonedbutnotforgotten.com/an_abandoned_village_in_italy.htm 

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