|Source: The Daily Ticker (Yahoo)|
Shilling believes excess inventories will cut house prices even further:
"The problem is that there are just too many excess inventories. We estimate that there are 2 to 2.5 million excess housing unit inventories over and above the normal working levels, and that's a lot. We normally build about a million and a half houses a year. Getting rid of those excess inventories, if you look at what's happening in terms of household formation and new housing being built, it will probably take 4 or 5 years, and that's plenty of time for this excess inventory to depress prices. Excess inventories are the mortal enemy of prices. We're looking for another 20% decline in house prices."
When asked if housing was already priced in, Shilling said:
"If we have the 20% decline, which would bring us back to the long term trend inflation adjusted on house prices. If we have that, and I think that's likely, and markets often overshoot on the downside by the way so it may be a conservative estimate, the percentage of mortgages underwater by our calculations would jump from 23% now to 40%, and at that point........"
Gary Shilling also thinks China is headed for a hard landing (Bloomberg TV - July 14, 2011), and read his recent article on deflation in Forbes. Here is Gary Shilling on Kudlow & Company on 11/26/2006 predicting the first housing and economic recession (starts 59 seconds in).