The worst is ahead of us rather than behind us in terms of the housing recession and its economic and financial implications
How bad is the US housing recession and are we close to its bottom? In recent interviews and remarks I have argued that the worst is ahead of us - rather than behind us - for housing, the real economy and the losses in financial markets.
The blogger Calculated Risk has certainly provided, by far, the best coverage of the US housing recession; a most excellent blog. This week he first linked to the Canadian TV interview where I expressed my concerns about the consequences of the US housing slump; he next provided three arguments on why he is not as pessimistic as me about this housing recession and its economy-wide and financial implications. His three arguments go as follows: first, by now housing starts have fallen as much as new home sales; so we are close to the point where the excess supply of new homes is reaching its peak. Second, he argues that in California if the borrower has refinanced the mortgage becomes a recourse loan and the lender can pursue a deficiency judgment; so the number of folks who will walk away is more limited than what I have estimated. Third, he argues that losses for banks from the credit crisis may be less than my estimate of $1 trillion.
There is certainly some uncertainty on each one of the issues that Calculated Risk has highlighted. Let me provide some additional details for the pessimistic case…
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