by Calculated Risk on 11/06/2006 11:54:00 AM

From Roubini: Desperate Realtors... Desperate Retailers... Desperate Housewives...

"It is a lousy time to buy as prices are falling - at an annualized rate of 10% for new homes - and they will be falling another 20 to 30% in the next two-three years as the glut of housing and the bust in the housing market unravels: which fool would buy a home now when a 20% down-payment and the entire equity in such down-payment will be altogether wiped out by a fall in home prices in the next few years? Anyone buying today at the still stratospheric prices will destroy his/her home equity in short order."

Reuters reports the opposite view: Greenspan: more housing weakness ahead, worst over

The U.S. housing market will weaken further, but the sharpest decline is over as inventories of unsold homes decrease, Former Federal Reserve Chairman Alan Greenspan said on Monday.

"This is not the bottom, but the worst is behind us," Greenspan said at a conference organized by financial services firm Charles Schwab.
...
A decline in U.S. home sales and construction has contributed to an overall slowing of economic growth to 1.6 percent in third quarter. But Greenspan said housing activity is likely no longer to be a drag on overall economic growth as unsold inventories clear out and stabilize against sales levels.

The former central banker said he is "reasonably confident" the United States will not slide into recession because businesses appear to be strong, as evinced by strong corporate profit margins and healthy levels of capital investment.

And Morgan Stanley's Stephen Jen (whom Brad Setser calls the "anti-Roubini") writes: The Risk of a Recession Within 12 months is Now Only 13%

"Overall, we remain comfortable with the view that the bond markets over-reacted to the slowdown in the housing markets, and that the structural US bears may have gotten ahead of themselves in predicting a recession in the US."

Click on graph for larger image.

Right now it seems like many people are bearish, mostly because the relatively few bears are very noisy and ubiquitous lately. Even though the bear camp is growing, the overwhelming consensus is still for a soft landing (Greenspan, Jen, etc.). The consensus view is GDP will rebound in Q4 and be slightly below trend in 2007. This graph from the FDIC shows the Blue Chip Forecast consensus.

This comment from Setser is an excellent observation:

"The dispersion in credible views about the likely course of the US economy is unusually large."

And mostly the difference in views comes down to the impact of the housing bust on the general economy. I think how people view the housing bust, depends on how they viewed the housing boom. Those that felt there was excessive speculation in the housing market (the definition of a bubble) believe that the housing bust has just started. Those that felt the boom was mostly based on fundamentals, with a little "froth", think the bust is almost over.

Obviously I believe there was excessive speculation, so I think the bust has a long way to go.