NEW YORK — Nouriel Roubini, professor of economics at New York University’s Stern School of Business, is calling it the worst housing recession since the days of the Great Depression.

Speaking during a session at the Real Estate Connect NYC conference on Wednesday, Roubini said he believes that a U.S. economic recession began in late 2007 and “is going to be much more severe” than economic recessions earlier this decade and in the early 1990s, with credit problems spreading across the financial system and impacting all forms of home loans, commercial real estate loans and even auto loans, among other forms of financing.

“What we’re worried about today is a systemic financial crisis. This is a severe, massive problem. It’s going to take years to adjust,” said Roubini. Home prices have already fallen 15 percent to 20 percent in some areas from their peaks during the latest housing boom, with housing starts tumbling 40 percent and sales sliding about 50 percent, he said.

If prices fall 30 percent from the peak, that would represent about $6 trillion in lost value and millions of homeowners with negative equity, he said.

Other real estate market experts shared their views on the future of the real estate market during the “Bull vs. Bear” debate, and expressed varying degrees of worry.

Dottie Herman, president and CEO for Manhattan-based brokerage company Prudential Douglas Elliman, said that mortgage interest rates were at about 19 percent when she entered the real estate business, though properties were still bought and sold even during those times.

“Do I think we’re going to go through some painful times? Yes.”

The credit crisis is a problem that will touch everyone — and it is not just isolated to the real estate market, she said.

The housing downturn may serve to make housing more affordable for buyers who are in the market, and has provided an ample selection of properties on the market.

There are lessons in the downturn, Herman said, about loose lending practices and consumer education about home loans.

Consumers are ultimately “responsible for what they’re purchasing,” she said, and “some people gamble.”

As for the New York City market, “we’re still a bargain compared to some other places outside of the country,” she said.

The five stages of grief, which you might learn about in a college psychology class, are very telling about the discussions over the slumping housing market, said Barry Ritholtz, chief market strategist of Ritholtz Research and CEO and director of equity research for Fusion IQ.

The first stage, he said, is denial. At first, when the housing market began to slow, some analysts and experts said it would be short lived.

At the next stage, there was an admission that there was a housing problem but a denial that it was impacting the overall economy.

That digressed to talk of the housing market downturn’s slight impact on the economy that was relatively contained, followed by claims that there were impacts to the economy but they were already accounted for in stock prices, Ritholtz said.

The next stages of grief, he said, are depression and acceptance. The National Association of Realtors trade group shares some blame for releasing “sunny forecasts,” he said, that he believes did not accurately reflect the spiraling market.

Wall Street’s system for packaging and selling mortgage risk as securities is in need of an overhaul, as “nobody really knows how to value them,” he said, and it will be a “painful process” when Wall Street fully recognizes and purges the problems.

Roubini said that Federal Reserve officials kept interest rates too low for too long, contributing to the current state of the market, and “regulators were asleep at the wheel” with the mortgage securitization model that is now “a little bit of a monster.”

The securitization “food chain” has been rife with conflict of interest, he said, as companies and entities involved in the process make money off of fees while they “shove the risk to someone else.”

“There are a lot of tentacles in this credit crisis,” and the fallout has the potential to reach pension plans and other financial sectors, said Noah Rosenblatt, founder of the blog and a real estate agent for Citi Habitats.

“We know we had a debt problem. Stupid things were going on. Wall Street took advantage of it like they always do. It’s a demon and we’re paying the price for it. It’s going to make the housing recession worse,” Rosenblatt said.

But a recession also presents an opportunity, he said, and a chance to correct a market that had moved so fast for so long. It definitely is going to take time, he said, as the prolonged period of lax lending standards will not be mended in the short term.

“This is a necessary but good thing for us to go through. We should go through this and accept it. This has to happen,” he said. “We need this downturn.”


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