US housing will hit new low this year before slow recovery in ‘12

26 October 2011 21:07  [Source: ICIS news]

WASHINGTON (ICIS)--US home construction will set a new record low this year before beginning a long road to recovery sometime next year to reach a near normal pace possibly by the end of 2013, housing industry officials said on Wednesday.

David Crowe, chief economist at the National Association of Home Builders (NAHB), said “new home and existing home sales will finally begin to pick up – but not soon”.

Speaking at the association’s semi-annual housing sector outlook and forecast, Crowe said before the industry begins a recovery in 2012, this year will see a new record low of new and existing home sales.

“We thought that 2009 would stand as the lowest on record, but it appears that 2011 will establish a new bottom,” he said.

He said he expected the housing market to continue flat for the next couple of quarters “before we start to see some recovery in 2012, led by some scattered markets around the country, and then get stronger into 2013”.

That forecast reflects a change in the association's market expectations in just six months.  In the group's last semi-annual outlook in April this year, Crowe had forecast a turnaround in new home demand and construction in the second half this year.

But that projected recovery has been pushed back to around mid-2012, Crowe indicated on Wednesday.

“It will be a long road back to normal for single-family housing starts,” he said, adding the anticipated recovery will be spotty, doing better in some states than in others, before reaching a near-normal pace by the fourth quarter of 2013.

In normal economic times, the US would see new single-family homes built and sold at a pace of around 1m to 1.5m annually.  During the housing boom years of 2004-2006, housing starts were running near, at and even above 2m units annually.

In housing data issued by the Commerce Department earlier on Wednesday, US sales of new single-family homes were at an annualised pace of 313,000 in September.

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 $15,000 (€10,800) worth of chemicals and derivatives used in the structure or in production of component materials.

Crowe said he expects the home building sector will begin to see some recovery in 2012 because the US economy is expected to show “slight but continuing improvement beginning in this current quarter and continuing into 2012 and on into 2013”.

In addition, he said a backlog of household formations should begin to flow into the housing market as the economy slowly picks up. 

He said data indicate that 1m to 2m household formations have been postponed over the course of the recent recession, and once the economy shows better strength, those 30-somethings that have been living with their parents or sharing apartments will begin to move into the home-buying market.

($1 = €0.72)

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

By: Joe Kamalick
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