From Homescape

Vegas? Forget about it. I’m not the betting type. But one thing we can all safely wager on this year: The housing market is going to get worse before it gets better. Adding fuel to the fire, the odds have grown that the economy will slip into a recession. At the beginning of last year, many economists put that chance at less than 1-in-3. Now an increasing number says it has climbed to around 50-50, according to The New York Times. Goldman Sachs, the biggest investment bank on Wall Street, announced last week that a recession is inevitable this year.

Last week at Inman’s Real Estate Connect Conference in New York City, I heard a wide range of forecasts for the future of the housing market. While I could give a sunny spin on the news, I’m going to keep it real. Reporting only the “positive” stuff will not help consumers stay informed and make smart investment decisions. I want nothing more than for people to believe that the market will turn around, but denial of the problems that exist will only keep the country from moving forward and finding realistic solutions to the financial crisis ahead of us.

Housing’s domino effect                                                             

The overall sense I got from the presenters and participants at the conference was not uplifting. Even the argument that “All real estate is local, and what could be happening in one market could be the opposite in another,” is being eroded by widespread trends in home value declines and increase in foreclosures across the United States. There are some markets still thriving (New York City to name one), but it’s safe to say a large majority of markets in the U.S. are beginning to feel the subprime backlash.

In addition, experts argue that the country’s growing financial woes are not influenced only by the faltering subprime market but by emerging problems in other sectors of the credit industry and other economic indicators, including the nation’s rising unemployment rate. The most critical predictions and eye-opening remarks at the Inman conference came from a panel of speakers in the “Housing Debate: Bull vs. Bear” forum.:

Recession is here
“We know we had a debt problem. Stupid things were going on. Wall Street took advantage of it like they always do. It’s a demon and we’re paying the price for it. It’s going to make the housing recession worse,” said Noah Rosenblatt, Founder of UrbanDigs.com. 

Rosenblatt argues that while no one wants to go through a recession, we shouldn’t fear it because it’s needed for the economy to stabilize and the market to rebound. He also suggests the Feds will only prolong the problem and cause more harm if they continue to cut interest rates.

Nouriel Roubini, a professor of economics at New York University’s Stern School of Business, gave an even more dire forecast.

“Yes, no one wants a recession, but people need to be aware that this recession will have a massive impact on job loss in this country….There will be people sitting in this room today that will not have jobs next year.”

Roubini’s comment received a wave of boos from realtors sitting around me. He called this housing crash the worst since the days of the Great Depression and argues that the recession, which the country is already experiencing, will grow more severe than the economic recessions of the early 1990s and in 2001. He said the financial woes facing the U.S. will not be isolated to just the subprime industry and will impact all forms of home loans, commercial real estate and even auto loans.

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

On a positive note, Dottie Herman, president and CEO of Prudential Douglas Elliman in New York, argued that this is the best time for home buyers that have strong credit scores and money down to take advantage of the market. She said there are more affordable and a larger selection of homes on the market for those looking to buy now then there was during the height of the boom.

“Buyers in today’s market don’t have to make split minute decisions and will less likely get into bidding wars when their looking for a home,” she said. 

Barry Ritholtz, CEO and director of equity research at Fusion IQ, presented a great analogy to the housing and economic crisis facing the country. Comparing it to “The Five Stages of Grief,” Ritholtz said the industry initially denied a problem even existed. But once we started to wake up, the anger sank in and the finger pointing began. And now we are entering the bargaining stage. Ritholtz said we are starting to see companies workout bailout deals and the Feds will continue to cut interest rates to stave off the bleeding. But we truly won’t get over our grief until we hit a depression (which will come in the form of a recession) and acceptance of the mess that has been created from our greed and ignorance. 

Do you feel that the economy is entering a recession? How long do you think it will take for the housing market to rebound?