FOX Business Network’s Brian Sullivan spoke with economist Nouriel Roubini about his outlook for real estate. He is of the opinion prices would fall another 7-10% killing an imperfectly formed recovery, as demand from first-time home buyers fades. While the number of unsold houses may have bottomed out, prices are poised to fall further, Roubini said.
When asked about the economy, Roubini, who has become a major figure in the public debate about the economy, said he sees a greater chance of an anemic U-shaped economic recovery in developed economies, while pointing out that another dip is still possible.
Courtesy of FBN: A transcript of FOX Business Network’s Brian Sullivan exclusive interview with economist Nouriel Roubini:
Nouriel Roubini: We are at the point in which the housing market is bottoming out in terms of quantities because they’ve fallen so much, 80% from the peak, but the glut of new and existing homes is still so large and is a overhang on the market, but I expect prices are going to fall over the next year another 7-10%.
FBN anchor Brian Sullivan: Is that nationwide the 7-10% drop? Are there select markets that might increase?
Roubini: Some markets might increase, like Boston or Denver where things are improving, but if you are looking for the average of these 20 metropolitan areas, there’s still a huge glut of supply, demand is still weak, all the inventory of foreclosed homes when the moratorium of foreclosures ending, therefore the down side price adjustment give an excess supply and weak demand across the nation.
Sullivan: Prices are down, interest rates are low and we have the first time home buyers tax credit of $8,000—why hasn’t that helped the market more? If you’re still seeing price declines, why aren’t we seeing price gains with all the stimulus that’s been thrown at us?
Roubini: Well, we’ve seen two or three months of prices rising, but that might be a seasonal factor and is the first time home buyers tax credit—you’re stealing dealing however from the future, and that’s going to expire December 1st then demand like for the case of Cash for Clunkers, they are going to fall again unless we extend it. The problem is that the unemployment rate is close to 10%, people are worried about jobs, and buying a home is the biggest thing you do in your life, and a situation in which you are uncertain about your income, about your jobs, you’re going to postpone buying homes.
Sullivan: So possibly another leg down next year?
Roubini: Absolutely. Between the reduction in the elimination of the tax credit and the excess inventory of foreclosed homes going to come to the market, I still see prices fall another 7-10%.
Sullivan: Where are we in the economic cycle, what should the Federal Reserve be doing?
Roubini: We are closer to the bottom of this recession, so there’s going to be a recovery, but in my view this recovery is going to be anemic… you have to save more, spend less. You have the housing market is weak, there is a glut of capacity in the corporate sector… there’s not going to be much cut back spending. The financial system is damaged—not much credit growth. There’s a large fiscal deficit, eventually going to cause trouble. So the Fed is going to stay on hold and should stay on hold because the recovery is going to be anemic sub-par below trend U-shaped rather then V-shaped.
Sullivan: Will they stay on hold all through next year?
Roubini: In my view, yes. Last time around, they stayed on hold for almost three years, even after the recession was over. This time around, the recession is twice as big, unemployment is peaking at 10%, not at 6.4%, therefore the Fed is going to stay on hold throughout next year.
