How bad is the US housing recession and are we close to its bottom? In recent interviews and remarks I have argued that the worst is ahead of us - rather than behind us - for housing, the real economy and the losses in financial markets.

The blogger Calculated Risk has certainly provided, by far, the best coverage of the US housing recession; a most excellent blog. This week he first linked to the Canadian TV interview where I expressed my concerns about the consequences of the US housing slump; he next provided three arguments on why he is not as pessimistic as me about this housing recession and its economy-wide and financial implications. His three arguments go as follows: first, by now housing starts have fallen as much as new home sales; so we are close to the point where the excess supply of new homes is reaching its peak. Second, he argues that in California if the borrower has refinanced the mortgage becomes a recourse loan and the lender can pursue a deficiency judgment; so the number of folks who will walk away is more limited than what I have estimated. Third, he argues that losses for banks from the credit crisis may be less than my estimate of $1 trillion.

There is certainly some uncertainty on each one of the issues that Calculated Risk has highlighted. Let me provide some additional details for the pessimistic case…