Economic uncertainty due to job losses means potential home buyers should hold off as prices are set to drop up to 20 percent in the next 18 months, economist Nouriel Roubini said on Thursday.
“There has to be a much more significant recovery of the economy,” Roubini said in an interview with Bloomberg television.
“People are so worried about jobs and their incomes and their wealth and not only that, [they’re] not buying homes, the biggest ticket items, they’re not buying cars and durable goods. They’re even cutting back on their disposable, discretionary spending.”
“So before we have a real recovery of housing we need to have a much better recovery of the economy. The U.S. is still losing 600,000 jobs per month. Given that uncertainty, nobody is going to buy a home even with lower rates, you have to put now 20 percent down to buy a home. Most people cannot afford that,” he said.
“And if home prices fall, you’re wiping out your equity. Why would you want to buy today if home prices are going to be 20 percent lower a year from now. It’s better to wait. That’s why prices are going to keep on falling in the housing market.
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“Well, at this point I would separate between quantity and prices. Housing starts and home sales have collapsed so much. They are well below trend level. These levels may be stabilizing and maybe even rising slowly, slowly but both of them fell sharply and that means that the excess inventory, unsold homes new and existing is still huge and that’s putting further downward pressure on prices.”
“So I can see how in the next few months, maybe there’s a bottoming out of housing on the quantity side but then that gap of supply is going to lead home prices to fall at least another 15 percent if not 20 over the next 12 to 18 months.”
“So I don’t see a bottom to the housing crisis on the price side. I see a stabilization on the quantity side given that the levels are historically terribly low.”