DailyFinance recently met with Gary Shilling, president of A. Gary Shilling & Co. to discuss China, the economy, housing prices, and to learn a little about Gary Shilling himself. In this video segment, Shilling focuses on the housing market.

Shilling explains that when an economy starts to recover, there are four cylinders that need to get fired up, but so far, the economy is running on one: It's unwinding the inventory cycle so that production actually fulfills final sales instead of old inventory. But the other three cylinders -- employment growth, consumer spending and housing -- are not yet working. Worse, there's no sign that any of these will improve.


In the housing market, where prices have already dropped 30%, Shilling says there is just too much extra inventory and that prices could easily fall another 10% to 20%.

For investors, all this is sobering news. But Shilling says we should all remember that "it's not the end of the world" and that our economy is deleveraging in a very appropriate manner.

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