Housing: No room for bulls

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NEW YORK (CNNMoney.com) -- Even a few months ago, it seemed like a good idea to hold a debate between real estate bulls and bears.

But with home sales spiraling and the outlook getting gloomier, it was hard to find a single optimist at a recent panel discussion on the forecast for the housing market.

"We're facing the worst housing recession in U.S. history," according to Nouriel Roubini, an economics professor at New York University and co-founder of RGE Monitor, an economic research and analysis firm. He predicted peak-to-bottom national home price losses of 30 percent.

Roubini joined a group of three other real estate experts at the Real Estate Connect NYC 2008 conference in New York Wednesday for a discussion titled, "The Housing Debate: Bull vs. Bear."

"There will be 10 million houses with negative equity," he said, where the owners will owe more on their mortgages than the properties are worth, giving them less incentive to keep making payments. Many will walk away, he said, depressing markets further.

The housing turndown, according to Roubini, was the initial trigger for a broad economic decline. "We're in an economy-wide recession already, one that will be much more severe than those of 1991 or 2001," he said.

Although housing only accounts for 5 percent of the economy, he noted, the slump has already reduced consumption, which makes up two-thirds of it. Consumers are no longer tapping home equity, and they're cutting back on spending.

And credit problems are no longer confined to subprime loans, according to Roubini. They've spread to near-prime mortgages, prime, auto loans and junk bonds, with losses that could reach trillions of dollars.

Another bear on the panel was Barry Ritholtz, chief executive of market-watcher Ritholtz Research. He placed the real estate slump in the framework of Elisabeth Kübler-Ross' five stages of grief: anger, denial, bargaining, depression and acceptance.

Ritholtz said we've just about worked through the denial stage, which was exemplified by the National Association of Realtors first saying there was no housing slump, then that it would be contained (the soft landing scenario), and then that it would be limited to housing.

Now, said Ritholtz, "We're in the bargaining stage," where he said we'll promise to never speculate on real estate again if God will only let us sell our properties now.

Next will come depression and finally acceptance. "That," said Ritholtz, "is when you should start to buy again."

The third bear was Noah Rosenblatt, founder of UrbanDigs.com, a blog that covers macro-economic trends and their impact on New York real estate. He not only predicted a strong recession but said he's looking forward to it.

"If you're a value guy, are you buying now? No," he said. "It would be like catching a falling knife. It's a credit crisis and we're going to see a lot worse before it gets better."

For Rosenblatt, a recession would clear out all the bad loans and foreclosure problems, and then the market could return to normal.

One solution, according to Ritholtz, is to get rid of brokerage CEOs who have a vested interest in holding bad loans they acquired on their watch and replace them with those who don't.

"They'll say, 'Hey! This isn't my crap. Get rid of it,'" said Ritholtz. By jettisoning the bad baggage quickly and taking a write-off, they'll move through the cycle sooner.

With three big bears in the midst, the housing debate's "Goldilocks" kept a low profile.

"I'm going to be as positive as possible, but I'm not going to make myself sound like an idiot," said Dottie Herman, CEO of Prudential Douglas Elliman, a broker specializing in New York City residential properties.

According to Herman, many of the markets that will experience the worst downturns are the same ones that enjoyed substantial run-ups. But, she added, it would also create "opportunities for people to buy."