US housing market slump nearly over - economist

20 February 2008 22:31  [Source: ICIS news]

HOUSTON (ICIS news)--The downturn in the US housing market is almost over, as the nation's demographic trends lay the foundation for a recovery, a US economist said on Wednesday.

The number of households is rising faster than the issuance of permits, said Gail Fosler, president and chief economist of the Conference Board. In addition, houses are becoming more affordable.

If credit markets loosen, "all of this adds up to good structural demand for housing," the board said.

Nonetheless, it will take time for the recovery of the housing sector to trickle through the general economy, Fosler said. As a result, housing will likely lower economic growth by 0.4 percentage point in 2008.

The housing industry is a key downstream consuming sector for chemicals and chemicals-based products such as roofing materials, adhesives, insulation, siding, paints and coatings, synthetic materials, polyvinyl chloride (PVC) pipes and a broad range of other construction materials.

Overall, the US economy has slowed down, but a recession is not likely, Fosler said.

Business activity and corporate profits continue to increase, while consumer spending is continuing at a rate of 2-2.5%/year, Fosler said. Rising energy prices and low demand for automobiles have lowered consumer spending from 4% in 2005, however.

Moreover, the financial sector is still showing signs of stress, she said.

Profits for financial services fell from about $10 (€6.80)/share in the second quarter of 2007 to a loss of $2/share in the fourth quarter, the board said. Financial companies have revealed that they may take $125bn-150bn in writedowns

“While there is continuing uncertainty about the economic outlook, economic shocks from the contracting financial sector are not enough to tip the US economy into recession," she said.

Fosler's economic prognosis lies at one end of a wide range of expectations.

Some economists say the US has a 30-45% chance of slipping into a recession. Others say that a recession has already started.

($1 = €0.68)

By: Al Greenwood
+1 713 525 2653

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