Some say the U.S. housing market has bottomed already, some say it will bottom this year, and still others are more skeptical.
Gary Shilling, president of A. Gary Shilling & Co has said home prices will plunge 20 percent from here. Meanwhile, PIMCO’s Mark Kiesel is bullish on the housing market saying despite headwinds, fundamentals are improving and he just purchased a home.
In a Bloomberg TV debate Kiesel and Shilling faced off on the state of the U.S. housing market.
Shilling who has pointed to shadow inventories, said there is an excess of 2 million inventories that will take at least four years to work off. He said “excess inventories are the mortal enemies of prices”. He also said that a 20 percent decline in prices would see underwater mortgages (i.e. when mortgages are more than the home is worth) would increase from 23 percent to 40 percent and home equity would plunge hurting consumer spending.
But Kiesel said the U.S. has 2.5 million homes in existing inventories, down in the last seven years from 4 million. There are only 144,000 new homes for sale that’s at a 49-year low, and existing inventories are at a seven year low. “So basically all inventories you look at whether new, existing or shadow they’re coming down.”
Moreover, Kiesel argued that housing issues are a regional story since the problems were largely isolated to three states (California, Arizona and Nevada). He said in other parts of the country home prices and sales were picking up. But Shilling shot back that these regional stories were a huge part of the national story – overall there is still a tremendous inventory.
There was no clear winner in the debate, and employment and the U.S. economic recovery will continue to play a huge part in how the housing story plays out.
Watch the entire debate on Bloomberg TV: