OUTLOOK '10: US housing market to remain weak despite uptick

24 December 2009 21:00  [Source: ICIS news]

Housing market unlikely to reach 2005 peak in 2010HOUSTON (ICIS news)--US housing construction will increase in 2010, but the industry will still remain well below the peaks reached earlier this decade, as the market struggles with high unemployment and tight credit.

"Total sales, construction and general activity - there is just nothing on the horizon right now," said Jim Gaines, research economist at the Real Estate Center at Texas A&M University.

"I can't see anything in there to be overly bullish, to see the market will have any appreciable pick up," he said.

A weak housing market could further squeeze margins for producers of expandable polystyrene (EPS), polyvinyl chloride (PVC) and titanium dioxide (TiO2) - all of which rely on the housing industry for much of their sales.

US housing starts have yet to recover from their peak of 2.07m, reached in 2005, according to the American Chemistry Council (ACC). The group expects housing starts will fall to 564,000 in 2009, down 73% from the 2005 peak

Reed Construction Data, a sister publication of ICIS, puts its 2009 forecast at 565,000, slightly more than the ACC figure.

Starts could reach 703,000 in 2010, a substantial improvement but still far from the 2005 peak, said Jim Haughey, chief economist for Reed Construction Data.

"The housing market is going to be better, but it is not going to be good by any means," he said. "It's not the typical boom we have from a deep recession."

Any return to the 2005 peak is still many years away, he said.

Indeed, the housing market still faces several obstacles. Although inventory levels have declined, the US housing market is still oversupplied, according to statistics from the US Department of Commerce and the National Association of Realtors.

A new wave of foreclosures could also hit the market, keeping inventories up and prices down, Haughey said.

At the same time, US unemployment will remain high next year, according to the ACC. Rates could reach 9.8% in 2010, up from 9.3% in 2009. That compares with 5.8% in 2008.

"People cannot buy a house without a job, contrary to what we went through in 2004, 2005, 2006," Gaines said. "You now have to have a job."

Although house prices and mortgage rates have fallen, many buyers are still locked out of the market, as lending standards have tightened, Gaines said.

"Even people who have a job, who want to buy a house, may have trouble getting the financing," Gaines said. Tight lending standards will likely persist, since many banks still have dubious loans on their books.

"Until all of that gets resolved, there is still a lot of uncertainty in the money markets and the capital markets," Gaines said.

The housing industry is a key chemical end market, with each start engendering an average of $16,000 worth of chemistry, according to the ACC.

Existing house sales are also an important chemical market, as they generate sales through purchases of paints and coatings, furniture, carpet, flooring and appliances, the ACC said.

For more on EPS, PVC or TiO2 visit ICIS chemical intelligence
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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By: Al Greenwood
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