NEW YORK U.S. housing prices may still fall more than 10 percent, killing an incipient recovery, as demand from first-time home buyers fades, leading economist Nouriel Roubini said on Thursday.
Roubini, one of the few economists who accurately predicted the magnitude of the financial crisis, said massive losses in commercial real estate loans will add to the problem, forcing banks to raise more capital.
"The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they are just starting to recognize that they're going to have massive, massive losses," Roubini of RGE Global Monitor told reporters after a presentation for a World Economic Forum report on the global financial system.
U.S. home prices rose for the third straight month in July, raising hopes the market is stabilizing after a three-year plunge.
A first-time buyer credit of $8,000, which is set to end on November 30, has jump-started housing activity this year and has helped reduce a massive inventory of unsold homes.
While the number of unsold houses may have bottomed out, prices are poised to fall further, increasing pressure on the economy again, Roubini said.
One of the main risks next year may be from losses on some $2 trillion in outstanding commercial real estate loans, the economist predicted.
"Half of this is in medium-sized and smaller banks, and even in the larger ones. Most of these losses are not recognized because they're keeping the loans at face value on their books," he said, forecasting that U.S. and U.K. banks will need to raise more capital when those writedowns are made.
Still, Roubini sees a greater chance of a U-shaped economic recovery in developed economies, with a 20 percent to 25 percent chance of a double-dip.
"If it's a U-shaped recovery, China, Asia, and emerging markets will do fine. If there is a double dip, the consequences will be severe for everybody."
(Reporting by Walter Brandimarte; editing by Jeffrey Benkoe)