Deutsche Bank: Here's Why Housing Will Sink GDP Next Year

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Peter Hooper at Deutsche Bank doesn’t expect much of a housing recovery next year.

In fact, he believes that housing prices could drop further, and weigh down on Americans’ consumption.

This in turn will drag down GDP growth…

The data points to another ugly year...

'Our update of the outlook for the US housing sector suggests that residential construction is likely to remain depressed for another year. The overhang of vacant homes remains elevated despite the historically low level at which residential construction has been running relative to GDP.

Adjustment of the housing overhang has been slowed by a depressed rate of new household formations. Our analysis suggests that household formations could remain subdued for another year or so in lagged response to the economic downturn and tightening of credit conditions.'

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

There are still way too many homes

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

Especially empty ones

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

The industry isn't optimistic either, based on their activity

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

Deutsche's model forecasts weakness in household formations

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

Prices may have stabilised...

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

But they could easily drop again

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

This will reduce consumer spending

'We also see home prices being depressed further over the year ahead by a high rate of foreclosures. The recent disruption to the foreclosure process could temporarily ease that pressure by slowing the rate of foreclosure sales, but it could also increase it by slowing the production of new mortgages (and therefore the demand for homes).

Another 5% decline in home prices seems likely and would further depress household wealth and sentiment, retarding the expansion of consumer spending.'

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

Deutsche expects 3.1% U.S. GDP growth in 2011 as a result

Source: Deutsche Bank, Global Economic Perspectives, Peter Hooper, 20 October 2010

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