US home prices fall in Feb amid fears of double-dip recession

26 April 2011 16:39  [Source: ICIS news]

WASHINGTON (ICIS)--US home prices fell in February for the seventh consecutive month, Standard & Poors (S&P) said on Tuesday, warning that the nation’s housing market “is within a hair’s breadth of a double-dip” recession.

“There is very little if any good news about housing,” said David Blitzer, chairman of S&P’s index committee.

“Home prices continue to weaken, while trends in sales and construction are disappointing,” he added.

Blitzer noted that the S&P composite index of home prices in 20 major cities had fallen in February to a level nearly equal to its April 2009 low point.

“The 20-city composite is within a hair’s breadth of a double-dip,” Blitzer said, meaning that the housing sector could be tipping toward another recession like that of 2006-2009.

Home prices staged a small recovery in late 2009 and early 2010, largely driven by a federal tax credit incentive that triggered a short-lived spurt in home buying. Since that stimulus programme trailed off in the second quarter last year, the housing market has turned down again.

The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals, resins and derivative products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

The American Chemistry Council (ACC) estimates that each new home built represents some $16,000 (€11,040) worth of chemicals and derivatives used in the structure or in production of component materials.

But new home construction activity has suffered because of the flood of foreclosed homes on the market.

Those properties, which banks are eager to unload and get off their books, often are sold at deep discounts that both lure buyers away from new homes and drive housing prices lower in local markets.

With housing prices in decline, home builders are reluctant to start new residential projects - even assuming they can get project funding - for fear that they won’t be able to sell their new homes at prices sufficient to cover their debt obligations, much less make a profit.  

The US Commerce Department recently reported that new home construction rose by 7% in March from February but remains 20% below year-ago levels.

US sales of new single-family homes also rose in March, the department said on Monday, but last month's 11% gain was measured against February's all-time record low in one-family housing sales.

A home building industry economist said on Monday that the sector seems to be “running at idle” and was not likely to improve until the overall US economic recovery gathers more steam.

A recent survey of housing contractors showed that they have little expectation of any improvement in sales over the next six months.

($1 = €0.69)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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