08 April 2011 20:26 [Source: ICIS news]
By Ruth Liao
HOUSTON (ICIS)--A US government shutdown could bring to a standstill the federal agency that insures a large portion of first-time home loans, raising concerns in an already-battered housing market, a university professor of real estate said on Friday.
Congress and the White House must agree on a budget by midnight Washington time (5:00 hours GMT) or the federal government could face a shutdown.
If this happens, Federal Housing Administration (FHA) - which plays a key role in insuring mortgages, particularly first-time homebuyers - could be stalled, said Jim Gaines, a research economist with the Real Estate Center at Texas A&M University. The housing market is a significant end user of chemicals and plastics.
Gaines said a significant impact would play out if a government shutdown were to last for weeks or months.
“However, if it’s just two or three days, that impact would be relatively minor, with some inconvenience,” he said.
The FHA issues the policies to cover as many as 40% of US mortgages.
One estimate indicated that for each week of a government shutdown, 30,000-35,000 home sales could be pending, according to Leanne Jernigan, spokeswoman from the National Association of Realtors.
“Essentially, this all depends on how long the shutdown lasts and to what extent,” she said. “Much of this we will not find out until Monday, if a shutdown does happen.”
Major lenders such as Wells Fargo have stated that applications would still be able to be accepted provided that a shutdown does not continue for an extended period of time.
Also, major loan-backers Fannie Mae and Freddie Mac are not expected to be affected by the shutdown.
In the US polyvinyl chloride (PVC) market, which relies heavily on the housing and construction sectors, some sources were concerned that the struggling domestic market would take yet another blow.
Latest US home building figures showed a sharp plummet in February, as the number of housing starts were down by 22.5% compared with January and down by about 21% from February a year ago, according to the Commerce Department.
Meanwhile, strong export demand for PVC has spurred US producers to seek increases in domestic contracts. Negotiations are continuing around 3 cent/lb ($66/tonne, €46/tonne) increases announced for March and April contracts. In addition, at least two producers announced 5 cent/lb increases for May.
One PVC distributor said any hang-ups in home lending could halt new home starts.
“All of the sudden, if they’re not building any new houses, that alone may halt the increases in the domestic markets,” the source said.
In addition to PVC, the housing industry is a major end market for such chemical products as synthetic fibres, paints and coatings, insulation and adhesives.
The American Chemistry Council (ACC) estimates that each new home built represents some $16,000 (€11,200) worth of chemicals and derivatives used in the structure or in production of component materials.
Major US PVC producers include Shintech, Formosa Plastics, Georgia Gulf, Oxy Vinyls and Westlake.
($1 = €0.70)
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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