Gary Shilling is even more pessimistic about the 2009 prospects for housing prices than Yale housing guru Robert Shiller.

Shilling says home prices will drop 20 percent from here — worse more than Shiller's recent forecast of a coming 15 percent drop.

Home prices are already down 25 percent in the past year on the S&P Case-Shiller index.

"It's excess inventory, pure and simple,” Shilling told U.S. News and World Report.

“That’s a mortal enemy of prices in any goods-producing sector,” particularly housing.”

“You just have all these excess inventories coming out of the woodwork as speculators throw in the towel and people foreclosed out of houses double up.”

Potential buyers are holding back in the hopes of buying at even lower prices, Shilling says, and that restraint will serve to lower housing prices too.

Shilling says the existing 1.5 million home inventories represents about a full year’s worth of housing supply over the long term.

“There are just not that many creditworthy borrowers out there lining up to buy houses,” he notes.

Even the push to lower mortgage interest rates below 5 percent won’t work because the decline in housing values effectively makes that rate 26 percent, trumping any advantage that a lower interest rate might create.

The Fed has been buying up billions in mortgage-backed paper in order to drive down interest rates. Its target is closer to 4.5 percent than the already historically low 5.1 percent.

“Housing starts and building permits are in free-fall,” NYU economist Nouriel Roubini recently told Bloomberg.

“There’s no bottom.”