Welcome to Housing Slump's Second Half


Gary Shilling Image Gary Shilling Columnist, Forbes

Efforts to keep underwater borrowers in their homes will only delay the inevitable 20% drop from current price levels, writes Gary Shilling in INSIGHT.

The massive overhang of excess house inventories—the mortal enemy of prices—suggests another 20% fall in home values, resulting in a 43% peak-to-trough total decline.

We estimate that excess house inventories exceed 2 million, a huge amount. In addition, Census Bureau data suggests at least 500,000 housing units have been held off the market by owners who want to sell but are hoping for higher prices.

Further price weakness will probably convince many of them to dump their properties on the market for whatever they’ll bring.

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Furthermore, the government-imposed moratorium on foreclosures during the Home Affordable Modification Program is essentially over. HAMP aided only 521,630 borrowers, compared with the hoped-for 3 to 4 million—and frequently left borrowers further under water.

Also, the lender-imposed moratoria on foreclosures during the robo-signing flap are unwinding as proper documents are prepared. So foreclosures are resuming, as delinquencies remain high. And when banks and other lenders foreclose on properties, they usually want to sell then immediately, often at market-depressed prices.

Foreclosures Are the Answer
Massive foreclosures would actually help to revive the housing market.