Skousen: Housing Market Will Take at Least a Decade to Fully Recover

Wednesday, 01 Jun 2011 02:27 PM

By Forrest Jones and Kathleen Walter

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The housing market is near the bottom and although it won’t likely throw the country back into a recession, it will need at least a decade before fully recovering, says economist and author Mark Skousen..

“We are certainly closer to the bottom than we are to the top. These things take 10 to 15 years to get to full recovery. I’ve been through enough of these boom-bust cycles in real estate and they’re really long term. Now this one is particularly severe,” Skousen tells Newsmax.TV.

There is always a risk that rising foreclosures or some unforeseen event will tip the economy back into recession, or at least threaten to do as such.

Yet as time goes by, such an event seems more unlikely, as banks clean up their balance sheets from the housing mess.

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“It’s hard to predict these kinds of things,”said Skousen, a columnist for Franklin Prosperity Report, published by Newsmax.

“A lot of times it’s a Black Swan event and you’re not sure … what big company or real estate trust is going to collapse or what have you. I think that’s one reason why the Federal Reserve has maintained these zero percent interest rates for fear that another one of these collapses could occur, but I am relatively optimistic,” says Skousen, who edits the investment newsletter Forecasts & Strategies.

Banks aren’t lending as they did before the financial crisis, which lessens the chances of another financial crisis similar to the one of a few years ago.

Asset bubbles may be swelling in countries such as China, but the chances of something happening in the United States are low, Skousen says.

In the United States, inflation is a problem thanks to the Federal Reserve’s bond buyback program known as quantitative easing.

The Fed is set to wrap up by month’s end a $600 billion quantitative easing program, dubbed QE2, in which the Fed buys government bonds from banks in an effort to position those banks to pump money into the economy and fuel more robust growth.

Some say the program can jack up inflation rates and weaken the dollar.

“Inflation, I think, is much higher than the government statistics, and that’s the price we have to pay for getting out of this recession,” Skousen says.

Until the Fed tightens monetary policy, investors should keep looking for opportunities in precious metals and commodities.

“I think gold will head higher as long as the Fed maintains this very low interest rate and inflation remains a threat. I am more bullish on silver, it’s more volatile, and I am more bullish on oil.”

For all of these faults, however, quantitative easing isn’t the worse way officials can resuscitate the economy.

Stimulus spending at the fiscal level is much worse.

“I think the Federal Reserve shouldn’t have done QE2 in the first place. We were already seeing an economic recovery and now we’re just going to get more inflation for it,” Skousen says.

“But I certainly think that quantitative easing is a much smarter strategy than this deficit spending, which is totally unnecessary at the federal and state levels.”

Despite government efforts, the housing sector remains weak.

The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.2 percent in March from February on a seasonally adjusted basis, in line with economists' expectations, according to Reuters, which means the housing market is double dipping.

“This is the double dip everyone is talking about, meaning that a year ago home prices were up as much as 4 to 4.5 percent, but since then they have fallen almost 4 percent,” says Cary Leahey, economist and managing director at Decision Economics in New York.

“So the declines sustained in the last 12 months have almost erased the gains of the previous 12 months. The housing market is treading backward, but not drowning."

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