Debate: Gary Shilling vs Mark Kiesel – Will Home Prices Fall Another 20%?

There’s an interesting video debate between Mark Kiesel and Gary Shilling on the direction of home prices in the United States. Gary Shilling argues that another 20% decline is coming, while Mark Kiesel contends that housing has bottomed and it’s now time to buy. Both of these analysts warned about the bubble as far back as 2004 which makes this an interesting debate.

For a bit of background, Mark Kiesel is a PIMCO portfolio manager who sold his home in 2004 and rented because he saw the bubble coming. And Gary Shilling is a popular economic forecaster who saw the housing bubble before it burst and has recently been talking about why he thinks another 20% decline is coming.

Gary Shilling’s argument:

  • There are 2 million excess units in inventory over and above normal working levels.
  • We built about 1.5 million units per year back in normal times, so 2 million is an enormous number.
  • The robo-signing fiasco is over and therefore banks will start foreclosing again.
  • NAR says that when foreclosures are sold they are sold at a 19% discount.
  • Another 20% decline is required to get back to long-term trend in terms of median prices

Mark’s counter-argument: 

  • There are currently 2.5 million homes in existing inventory, down in the last 7 years from 4 million.
  • There are only 144,000 new homes for sale, which is at a 49 year low. 
  • Existing inventory is at a 7 year low.
  • There were 3.9 million 90+ days delinquent 2 years ago, and today it’s at 2.9 million. 
  • So, no matter what inventories you look at, they are all coming down.

Shilling’s response:

  • Yes, inventories are coming down but they are still huge.
  • When you count in the shadow inventory you’re still over 2 million above a normal working levels.

Mark’s response:

  • Housing is regional.
  • The implied rental yields are 5-12% in some markets and therefore this inventory will get absorbed pretty quickly by investors.
  • We’ve added 2 million jobs in the private sector over the past 2 years. Energy, technology, autos, and manufacturing are all doing well.
  • Some housing markets have shortages and most foreclosures are concentrated in two markets, Florida and Arizona. 
  • Again, housing is regional.


  • People used to say that the real estate bubble was local and concentrated in sub-prime or particular regions. 
  • They said the problems were only concentrated in Arizona, Florida, etc.
  • To say there are a lot of shortages here and there is begging the question. Overall there is still a lot of inventory.

Final points:

Mark: We aren’t in a recession anymore, job growth is occurring in many markets, banks are gradually willing to lend, and the fed is pursuing a reflation policy. Therefore you want to own a hard asset like real estate.

Gary: It would still take a 22% decline to get housing back to it’s long term average identified by Bob Shiller.