FocusUS home inventory saps market strength

By Al Greenwood

HOUSTON (ICIS news)--The supply of existing houses for sale in the US ballooned to a 16-year high of 9.6 months at current levels of demand in a trend that could sap the strength from the nation's already weak new-home industry, sources said on Monday.

Since the average US house has about $12,000 (€8,760) worth of chemicals according to the American Chemistry Council (ACC), any weakness in new home construction could negatively affect an important end market for a wide range of chemicals, especially polyvinyl chloride (PVC).

The bloated inventory of existing homes for sale comes when new homes are already competing for buyers, according to Kevin Swift, the council's chief economist. In addition, lenders are under intense scrutiny for lending to so-called "subprime" -- or higher risk -- borrowers, Swift said.

According to data on Monday from the National Association of Realtors (NAR), in July, the supply of new houses rose 5.1% to reach 4.59m residences. At existing levels of demand, the inventory of used homes for sale would take well over six months to deplete, far beyond the point realtors consider balanced for the market.

In July, the number of existing houses sold reached an adjusted total of 5.75m, down 9% from a total of 6.32m in July 2006, according to the NAR.

Median home values sold in July held broadly steady in the face of rising inventories however, at $228,900, down only 0.6% from $230,200, the median in July 2006, the association said.

The data have led some sources in the housing industry to expect home values to drop in the months ahead.

Swift of the ACC said August's sales could be even worse, reflecting the tighter lending criteria that banks have adopted since July in the wake of the subprime meltdown.

"People aren't qualifying for loans," he said.

The slowdown in the US house market has been blamed for lower revenues by such companies as Georgia Gulf, a maker of PVC, and Tronox, which makes titanium dioxide (TiO2).

While existing homes are not typically a major end market for pipe, they do make up 80% of demand for architectural coatings,  since houses are frequently touched up with new paint and varnish to fetch a higher price at the time of sale, Swift said. 

The weakness in the US housing market has led to an excess of supply for Ti02 pigments compared with demand, buyers for paint manufacturers said. As a result, heavily discounted spot volumes were being offered to major customers as an incentive for locking in future orders, buyers said.

One source estimate year-over-year TiO2 demand in the US to be off by 10% because of the housing glut and the resulting slowdown in paints and plastics.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly