The United States could be facing the second leg of double-dip in house prices, a prominent economist said at an investment conference in Hamilton yesterday.

Burton Malkiel, professor of economics at Princeton University and author of the book "A Random Walk Down Wall Street", said it would be "fortunate" if house prices maintained their current level in real terms.

And he predicted a "sluggish" economic recovery over the coming years.

Speaking in a question-and-answer session at the Vanguard Bermuda Investment Forum at the Fairmont Hamilton Princess, Dr. Malkiel said: "There is a chance of a double-dip in housing prices, because in real terms housing prices are still very high.

"The anecdotal evidence suggests there might be a double dip. There is a shadow supply of housing. Financial institutions have houses they have repossessed and they've been keeping them off the market, because they don't want to kill the market.

"I think we would be very fortunate if the market stabilised where it is now."

Dr. Malkiel displayed a graph of US house prices over the past 120 years. It showed that when adjusted for inflation, house prices were effectively the same in 2000 as they were in 1900. But between 2000 and 2008, real-terms prices doubled.

Despite having plunged around 30 percent from their peak, the graph shows that inflation-adjusted pricing is still well above average for the last century.

The bursting of the housing bubble was a major factor in the credit crisis and subsequent global economic downturn.

However, Dr. Malkiel felt that the chances of a double-dip recession were small.

"The initial uptick we've seen has stemmed from government support and inventory rebuilding," Dr. Malkiel said.

"There has been some repairing of the balance sheets of both individuals and financial institutions as well.

"However, I do worry that the recovery is going to be quite sluggish, because there is still a lot of adjustment to be made."

He explained that the recapitalisation and deleveraging process that financial institutions were undergoing had "only just begun". The balance sheets of individual consumers were also "still overextended", he said.

Savings rates in the US averaged about three to four percent of income, as opposed to around 40 percent in China, he added. Household liabilities in the US averaged around 40 percent on income in the 1950s and had risen to around 140 percent by 2007.

Dr. Malkiel was bullish on emerging market economies, which accounted for 46 percent of global gross domestic product (GDP) in 2008 — a figure that would soon rise to well over 50 percent, he said.

Although he admitted that economists were notoriously bad at predicting the direction of currency fluctuations, he added: "The one bet I will make is that five years from now, the Chinese yuan will have appreciated against the US dollar. I feel very confident about that."