by Calculated Risk on 5/31/2007 12:16:00 PM

Some excerpts from Professor Roubini: Q1 Growth Revised Down to 0.6%: We Are Already in a Growth Recession

On housing:

In brief, [the view of four senior analysts at a 10 global financial institution]: the housing market is still weakening and - based on their May survey of traffic - housing sales traffic is close to dead; it would take developers to shut down all new construction for almost a year to get rid of the excess supply of unsold homes; thus, downward home price action may continue for the next two years; the credit crunch in the mortgage market is only at its early stages and the distress and crunch is spreading from sub-prime to Alt-A and near prime mortgages; the major mortgage lenders have not yet started to get a reality check on how bad their assets are and properly mark them to market; the ABX index (the BBB- tranche) collapsed from near parity down to 60 in the last few months and has now recovered to close a still low 67; but, given how lousy were mortgage originations in 2005 and 2006, deliquencies in subprime will further increase in the next few months and further downward pressure in the ABX indexes may be expected.

This writer has been a serious bear on housing for a long time: but after listening to these most sophisticated analysts of housing, mortgage lending and the MBS markets from a top global financial firm my concerns seemed almost not bearish enough. The main message from these analysts and the data is that the housing recession, the subprime carnage and the broader mortgage mess are getting worse, not better; and things will get worse well into 2008. There is no end in sight to the housing recession and we are only in the first innings of the mortgage credit crunch.

This fits very closely with my view: there is no end in sight to the housing slump.

And on the economy:

The latest macro data are certainly mixed with some supply side indicators showing an improvement while consumption and housing have been weakening. ... unless there is a massive recovery of net exports, capital spending by the corporate sector, inventory rebuilding, Q2 growth will remain in the growth recession range. The current soft landing consensus argues that such recovery in these components of aggregate demand may be underway. I am not convinced - for reasons I will flesh out next week.

I'm looking forward to Roubini's future posts. So far non-residential investment is holding up pretty well, although, with the typical lags, we might expect non-residential investment to start to decline about now. As far as consumption, we are still waiting to see the impact of declining MEW (and the end of the "home ATM").