US house prices, according to today's S&P/Case-Shiller Index, are still falling quite sharply. As shown in the chart, they are now down 17% versus last year. The key influence, according to S&P, is that 'the markets that were the high-flyers during the recent real estate boom continue to be the ones that are leading the current decline'. Thus prices in Miami, San Francisco, Las Vegas, Los Angeles, Phoenix and San Diego are all down around 25%, whilst cities such as Atlanta, Chicago, Detroit, Minneapolis and Washington are 'only' down around 10%.
• Sales of existing homes were down 13% from 2007 levels, and inventories rose to over 11 months of supply at current sales rates.
• Sales of new homes were down 35% in July, versus last year, and although inventories dropped slightly, they still stand at over 10 months.
• Over 1/3rd of all sales were 'distressed', including foreclosure. And the number of properties at risk of foreclosure is rising sharply, up 55% from last year.
The problem is that although the US Fed has cut headline interest rates by 3.25% over the past 12 months, borrowers have seen little benefit. Actual rates paid by homeowners averaged 6.43% in July, versus 6.7% last year. So unfortunately, as the blog warned 6 months ago, the Fed's efforts are 'like pushing on a string'. The peak sales seen in 2006-7 were the result of lax lending standards, and sales are unlikely to recover whilst lenders continue to tighten back to more normal levels.
Meanwhile, a second phase of the downturn now seems to be underway, with home builders cutting back quite sharply. New housing starts in July were at the lowest level since 1991. Of course, this type of reduction in supply is essential if the market is to bottom. But, as US Housing Secretary Steve Preston said yesterday, any real improvement is now unlikely to happen until 'well into 2009'.
This is all very bad news for the global chemical industry. Domestic producers will suffer a loss of demand due to fewer homes being built. As will Asian exporters, whose products are used in the manufacture of white goods (refrigerators, microwaves etc) and furnishings for US homeowners. Equally, failing house prices eliminate the potential for mortgage equity withdrawal, and so we must expect that auto sales (another major source of chemical demand) will also continue to weaken.