Housing prices are due to slide another 20 percent nationwide and will throw the U.S. economy into a fresh recession probably sometime next year, says economist Gary Shilling.
"The problem is there are too many excess inventories. We estimate that there are 2 (million) to 2.5 million excess housing unit inventories over and above the normal working levels," Shilling tells Yahoo's Daily Ticker.
The United States normally builds about 1.5 million houses a year, so with such excess inventory lagging on the market, it's going to take around four to five years for normalcy to return.
"Excess inventories are the mortal enemy of prices, and we're looking at another 20 percent decline in prices," Shilling says.
A 20 percent decline would send the number of underwater mortgages — defined as owing more on a home than it's worth — rising to 40 percent from 23 percent today, which is enough to devastate an already weak economy.
That means the United States isn't merely going to double dip back into the recession from which it just emerged, but rather, it will go barreling into a new one.
"This is something that is going to unfold over the next couple of years, but at what point would it be a shock enough to cause a negative economic growth pattern? I think next year looks pretty critical."
Plus, overall economic uncertainty isn't helping a recovery anyway, especially in view of fate of the U.S. debt ceiling.
The Obama administration has hit its $14.3 trillion debt ceiling, and Congress must give it the green light to raise it.
Republicans and Democrats have been unable to agree on lifting it, and if they don't raise it by Aug. 2, the government says, the United States will default on its debts.
Foreclosure filings in the first half of the year plunged 29 percent compared with the same period a year ago and were down 25 percent from the last six months of 2010, according to RealtyTrac, an online marketer of foreclosed properties.
Don't break out the champagne just yet: the decline represents processing delays at banks overwhelmed by the sheer size of foreclosed homes they must handle.
Improvements in the housing sector have nothing to do with the drop in filings, says RealtyTrac's CEO, James Saccacio.
"We estimate that as many as 1 million foreclosure actions that should have taken place in 2011 will now happen in 2012, or perhaps even later," says Saccacio, according to CNNMoney.
That means the housing slump will continue.
"This casts an ominous shadow over the housing market where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number," Saccacio says.
Others agree that delays in foreclosure are bad for the economy.
"The government should be trying to speed foreclosures, not stop them," says Arnold Kling, an economist with the Mercatus Center at George Mason University and formerly with Freddie Mac.
"Postponing foreclosures may simply be putting off the inevitable market bottom. We need to remove barriers to foreclosures."
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