When will the recession end? Part 4 The double dip housing crash in the USA

Back in November 2008 I predicted that we may go through a double or even tripple dip recession or depression, due the the protracted list of speculative leveraged asset bubbles, about 15 at my last count.

Now two US economists provide more evidence to support this view, speculating that  a possible double dip housing crash might be in the cards. As the U.S. housing recession enters its fourth year, there’s no sign of a recovery because speculators account for most of the rise in sales, and not honest home buyers. Speculators that bought and flipped property,  as well as toxic sub prime mortgages to people who could not afford homes under normal circumstances, were the two main drivers that drove up housing prices and inflated the first US housing bubble from 2000 to 2007. Now these same speculators are back in the market,  snapping up foreclosed properties at rock-bottom, pennies-on-the-dollar prices. On the surface, this sounds  like good news, the right way to go. Everyone  starts buying up distressed property, taking  the excess supply of foreclosed homes off the market that has been dragging down prices. But two American economists, Joseph Stiglitz, the Nobel winner  from Columbia University, and Robert Shiller of Yale warn that the opposite may happen--these speculative investors will rent out property in the mean time, and  sit on their newly bought bargains, only to throw them back on the market when prices start to rise. This new sudden supply glut will drag the market back down again. Stiglitz even talks of a potential “double dip’’ in the housing downturn if this were to happen.

"We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,” Stiglitz tells Bloomberg. “We could see a double-dip in the housing recession if that happens.” Stiglitz predicts that housing prices could begin to stabilize in 2010, but worries that this positive step could get delayed by a deteriorating economy and rising speculation. Shiller contends that the frenzy of bargain shopping by speculators may be preventing the market from truly hitting bottom now. And when all those homes come back on the market, it could send prices crashing down again. “These speculators are preventing the market from crashing now, and when they get out it could fall again.” says Shiller.

U.S.real estate prices and sales may begin to stabilize in 2010, said Stiglitz. A worsening economy and growing speculation will delay the recovery further, he said.

“Assuming we don’t overshoot, we could be back at equilibrium in 12 to 18 months, but there are reasons to believe we might overshoot,” Stiglitz said.

In November 2008 there were 4.2 million homes on the market, falling from an all-time high of 4.6 million in July, the National Association of Realtors said in a Dec. 23 report. The U.S.median home price plunged 13 percent from a year ago, the fastest pace since the 1930s, the trade group said.

Banks and othe lenders repossessed about 850,000 US properties in 2008, according to RealtyTrac. The $11.5 billion of homes held by U.S.banks at the end of the third quarter, the highest on record, was more than double the $5.3 billion of the year-earlier period, according to the Federal Deposit Insurance Corp. in Washington.

Walter Derzko, Smart Economy, Toronto,

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression featuring 45 opportunity scenarios.

Related Posts

When will this recession end?

When will this recession end ? Part 2 Do you listen to the Optimists or the Pessimists in 2009?

When will the recession end? Part 3 The coming collapse of the American Middle Class into an Underclass

When will the recession end? Part 4 The double dip housing crash in the USA 

When will the recession end? Part 5 Stop Auto Industry Bailouts, start buying ElectricWhen will this recession end? Part 6 The USA Paradox; Cheer vs Fear vs Transformation

82 Signposts to the current Recession Depression Summary from 2008

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