Rising US energy costs could chill the nascent housing recovery

12 September 2012 20:23  [Source: ICIS news]

WASHINGTON (ICIS)--Increasing US energy costs could dampen improving housing sector developments and further slow the nation’s already wobbly recovery, a top housing economist said on Wednesday.

Frank Nothaft, chief economist at the Federal Home Loan Mortgage Corp – known colloquially as Freddie Mac – said that “Energy costs have remained high and increased in recent weeks, placing a further dent in consumers’ and businesses’ spending plans”.

Freddie Mac is one of two secondary mortgage market entities chartered by Congress to add liquidity to the housing finance market. The other government-sponsored mortgage market agency is known as Fannie Mae.

Both agencies purchase mortgage loans from banks, bundle the loans into investment packages and sell them on the global market. Betweens them, they underwrite most mortgage loans in the US.

In his regular monthly outlook for the housing market and the broader US economy, Nothaft cited US Department of Energy (DOE) figures showing that the average price of a gallon of regular gasoline reached $3.84/gal (€079/litre) on 3 September, having gained 50 cents/gal over the previous two months.

“The 15% increase in gasoline prices since early July diverts purchases away from other consumer goods and can forestall business investment spending,” Nothaft said.

“This in turn can slow the pace of economic growth and with it the recovery of the housing sector,” he added.

The US housing sector, especially new home construction, is a key downstream consumer industry for chemicals and resins.

Nothaft said that increasing gasoline and other fuel prices could chill what has been seen as a real beginning for the long-awaited housing sector recovery.

He noted that low mortgage rates and still low home prices have helped energise the housing sector, with home sales in the first seven months of 2012 up by 8% from the same period of 2011.

In addition, housing starts have shown a 19% year-on-year gain in the same seven-month period.

Although rising fuel costs do pose a threat to both the housing sector and the broader economic recovery, Nothaft said the impact of higher energy costs was not as profound now as it has been in prior years.

“A fuel-price spike doesn’t pack the same punch it once used to in part because of more efficient energy use in automobiles, homes and appliances,” he said.

($1 = €0.78)

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

By: Joe Kamalick
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