Mr.Roubini seems to think a American recession will break down the International system or Bretton Woods II. Thus my guess he feels the recession will deepen over 2007 as money flows from foreign investers completely dries up skying long term rates and strangling consumers. Housing seems to be his trigger.

Obviously that is possible, but I also think we are(probably have) entering a period like 2000-2001 as growth stagnates between a period of bubbles. These bubbles are almost like "trends", "hip" "cool" fads. In 2002, housing was the cool thing man. 2006 it is old news. 1996 tech was hip man, 2000 it was so over. Much like Mr. Roubini, I find this attitude disturbing and the Feds unwillingness to handle these bubbles because one hasn't busted yet that has created a hellfire of a recession playing with fire.

My guess is, Mr. Risk, your "middle ground" beliefs are probably correct, a mild recession and the debt binge moves to the next bubble after catching its breath for a couple years. But what if Mr. Roubini's bubble bust turns into a severe recession? Cultural and economic change. Especially to the young.

Isn't the real problem the cost of the excess housing? The other issue is that much of the recent demand has been driven by speculators and speculators are now net sellers. The traditional buyers who sell one house and buy another have no net effect on inventory. This leaves "new buyers" to take care of the inventory. Unfortunately, new buyers, for the most most part, are either priced out or are smart enough to wait. Another important issue is that loan standards are tighening. If they just tighten to traditional standards--having a down payment and paying a reasonable amount of family income for housing, this will cut out a signficant proportion of recent buyers.

Dear CR

Interesting article in today’s Wall Street Journal by R. Simon and M. Hudson on who will be left holding the bag on home loans in today’s market.

Bad Loans Draw Bad Blood - WSJ.com

What struck me is that the current financing of home loans makes them much more open to market forces.

Below:
“A generation ago, nobody asked. Banks made loans and suffered the consequences when borrowers didn't pay. Today, a complex Wall Street machine buys and sells mortgages and packages the loans into securities that are diced and sliced and sold again to investors world-wide.
Although the $9.1 trillion mortgage market has been relatively calm as the housing market has slowed, players on Wall Street and beyond are starting to grapple over bad loans, especially in the market for borrowers with scuffed credit -- so-called subprime customers.”
And this:
“Mortgage repurchases aren't always reported, so it is unclear how many loans are being sent back to their lenders, or their total value. A study by Credit Suisse Group found evidence of a jump in the subprime market. It examined 208 bond deals involving pools of subprime mortgages totaling $234 billion. The study found nearly half of these mortgage pools had some loans repurchased in the first quarter of 2006, up from less than a third that faced repurchases in 2005. The dollar value of repurchased mortgages has been small -- well under 1% of the total value of mortgages in the pools with at least one repurchase -- but it also climbed, the study found.
It is unclear whether the recent round of mortgage hot potato represents a fine-tuning of the system that helped create the largest mortgage boom in history or the beginning of a more serious shakeout.”
IMO, this type of activity makes life a little more tenuous for the “middle class.” Such forces could contribute to a more rapidly falling housing market and puts the lie to those who think that housing are unlike equities. Seems like the financing of homes, at least, is more and more so.
Regards

I think this might be a really futile effort. There are just way too many variables. How will the demand for second homes change? How many units that were taken off the rental market for condo conversion on currently in process? Are they being counted, as existing, or new housing? Is the inventory of over-building all in areas of job growth?

There are probably a dozen factors none of us could conceive of right now that will play into this.

Even after the fact, this will probably be impossible to measure.

This is one time when I think the anecdotal evidence, given its mass, outweighs the forecasting. How many builders have now referred to this as the biggest drop-off they have ever witnessed? How many markets have rising inventory? etc.

Nothing's a sure thing, but my money is bet on a much deeper decline.

Well, now we have two people posting as "ac".

FYI the last post I made using this name was:

Well that would be just about the shortest housing downturn ever.

His legacy is at stake.

All the others are from somebody else.

Perhaps a log in system is needed.

Another thing not already mentioned would be if - say due to a recession with job loss - the ownership percentages reversed.

I mean aren't we at an all time high ownership rate? According to THIS TABLE we gotta be close...

I understand people have to live some where but sometimes economic conditions force people to make compromises... So maybe people move in with friends & family & occupancy per unit increases.

Or more rent already existing units (apartments)... Rental vacancy rates seem historically high also... if THIS TABLE is right.

Combine the effects of decreasing ownership rates for people going back into vacant rentals and/or cohabiting and this overhang could be significantly larger than our previous guesses as pessimistic as that sounds.

I'm not predicting this 'worst case' just suggesting the boundary for what's possible could be way out there some where.

It might be time for some more graphs with upper & lower limits, CR... only this time for housing starts, completions, sales, etc. After all, we all love graphs.