The results of the Standard & Poor’s/Case-Shiller Home Price Indices, the Federal Housing Finance Agency home price index and the Lender Processing Services [stock LPS][/stock] home price index this week all report the same consensus: home prices continue to increase, a sure sign the housing market is steadily recovering. 

However, Christopher Whalen of Tangent Capital Partners isn’t taking the bait the indices are casting out.

In fact, take a close look at this video clip from Fox Business featuring Whalen on Tuesday, particularly the bit at 3:17…


Whalen predicts another recession to happen next year because of the housing industry — the fiscal cliff won't push the economy over the deep end.

What factors are aiding Whalen’s prediction?

Well for one, home prices are up from a very low base, not even hovering close to pre-crisis levels. Factors such as a lack of credit, specifically the Dodd Frank legislation, which wiped out all of the third party originators. 

Another issue is the number of people  — or lack there of — who qualify to buy homes. The FHA currently rejects FICO scores of 720. To quality a person’s FICO score must be at least 740, but Whalen argues that very few people quality in that range.

The foreclosure process is another significant factor that Whalen tacks to the looming recession. With judicial and non-judicial foreclosure polices differentiating in each state, the process can be quick or slow, causing delays for an improved housing market.

So how should the housing industry be solved? Fix the market, of course.

"We have to fix this,” Whalen said. “My friends in the analyst community they all say, ‘Oh, we’re never going to have private-backed mortgage securities again that don’t have a government guarantee.’ No, we have to fix that market. We have no choice. We have to fix it."