US housing on watch as credit stabilises

16 May 2008 19:40  [Source: ICIS news]

HOUSTON (ICIS news)--The US housing market still has further downside but there are signs of future recovery as capital markets stabilise, Treasury Secretary Harry Paulson said on Friday.

“Although we are still working through housing and capital markets issues, and expect do be doing so for some time, we also expect to see a faster pace of economic growth before the end of the year,” Paulson told a luncheon group in Washington, DC.

Paulson reiterated the Bush administration’s concerns that erosion of home values and a spike in foreclosures pose the greatest risks to the US economy, and he cautioned that more time was needed for home prices to stabilise.

“We know the correction has further to go…but the correction is progressing. We are working through the excess inventory” he said, referring to the glut of unsold homes on the market.

Capital markets have begun to stabilise as the de-leveraging of and re-pricing of risk continue, Paulson said.

“We are seeing signs of progress,” he said, citing improved liquidity and investor confidence in a number of sectors including corporate bonds, leveraged loans and high-yield debt.  Those improvements indicated a trend toward broader capital market recovery, he said.

Paulson added: “Looking forward, I expect that financial markets will be less driven by the recent turmoil and more by broader economic conditions, and specifically the recovery of the housing sector.”

US chemical markets are sensitive to the housing sector and economic growth in general.  The construction of a new US home on average consumes about $16,000 (€10,400) worth of chemicals and chemicals-derived products, according to the American Chemistry Council (ACC).

($1=€0.65)

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By: John Waggoner
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