Get uncomfortable, this could take a while: James Saft

(James Saft is a Reuters columnist. The opinions expressed are his own)

By James Saft

LONDON (Reuters) - A housing market bubble of historic proportions is unwinding, raising the risk that the current period of poor economic growth in the United States could be measured in years not quarters.

While the first problems emerged in subprime lending, it has become clear that housing is falling across geographies, price categories and borrower types.

And with momentum now behind a fall, the implication is that the process will take a long time and destroy trillions of dollars of capital.

"It is such a big crisis that it is of historic importance," Yale economist Robert Shiller said in an interview at the World Economic Forum in Davos last week.

"It may represent a major turning point and we will see years of falling home prices and associated economic weakness."

Shiller, the originator of the Case-Shiller index of U.S. house prices, said house prices could fall by as much or more than they did in the 1930s, when an extended fall took them down by 25 percent in nominal terms.

They have fallen 6.7 percent in the year to November, according to the Case-Shiller measure.

Research by Shiller shows U.S. house prices were virtually unchanged in inflation adjusted terms between 1890 and the late 1990s, before rising a spectacular 71 percent on the same basis from 1997 to 2005.

The upshot is more write-downs for banks and an extended period when the U.S. and global economy are vulnerable.

If the more than $100 billion of bank write-downs from subprime have frozen credit markets and pushed the United States to a probable recession, it is hard to imagine what will happen if Shiller's scenario takes effect.

"It's trillions of dollars, so much bigger than the subprime losses we've seen already," he said.

It also implies a chance of a long period of grinding, slow growth, as house prices slowly reset downward.

Edward Leamer, of the UCLA Anderson business school, has done research showing that home owners resist selling into falling markets.

That means housing, unlike stocks, don't reset lower in short, sharp adjustments, but slowly, with low sales volumes.