A. Gary Shilling, who predicted the U.S. housing collapse and the Greek crisis of 2010, says house prices will fall another 20% before the market hits bottom. With excess inventory of unsold homes in the millions he sees no other way for house prices but down.

Massive Deleveraging

Shilling, who is president of the investment research firm A. Gary Shilling & Co. in Springfield, New Jersey, believes the Fed’s efforts in stimulating the economy will fail. He says that this recession is unlike the others: This time around, massive deleveraging is under way.

Savings rates will keep climbing as consumers realize they have not retained enough resources to retire on. Home equity withdrawals have already ceased as a result of falling house prices.

A Stock Market Sell Off Will Decimate Retirement Savings

Shilling also thinks the stock market is overvalued and we are in for a “significant” sell off within a year as the Federal Reserve fails in its efforts to stimulate economic growth. This will further decimate many Americans’ retirement savings.

No matter how hard the Fed tries, Shilling believes overall borrowing will continue to decrease.

Given his recent track record, you can’t dismiss him out of hand. He predicted the housing collapse. He foresaw the Greek crisis of 2010 and called for investors to short the euro only days before its spectacular collapse in early May.

Shilling sees this trend continue for at least another decade. He lays out his outlook in his new book, “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.”

Shilling’s predictions are in line with the outlook in the most recent research report by Zillow (we have a summary for you right here).

If the purchasing power of Americans keeps sinking and with it the rents, some seemingly cash-flowing real estate deals may turn out not to be such great investments. Prepare for the worst.

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