US housing enters the New Normal

US housing Oct10.pngThis is Budget Outlook week in the blog. And for the rest of the week, it is looking at a key issue in a major Region. Today, it highlights the US housing market. This used to be a $35bn market for chemicals, with up to 2.2m housing starts a year, each worth $16k in sales. Now it is worth just $10bn, with recent starts only ~600k.

The above chart, from thechartstore.com, highlights the key issue. A year ago, it was widely assumed that starts would soon recover from these 50-year lows (green and orange lines), as low interest rates and tax credits stimulated demand. But clearly this didn’t happen. Instead, many now worry that rising numbers of foreclosures may lead to further falls in house prices.

Equally, there is increasing evidence that consumer trends have changed from those seen over the past 20 years. Large McMansions are no longer fashionable. And underlying demand growth for new housing has slowed, as lack of cash and fear of unemployment forces families to share homes again.

This suggests that US housing has been one of the first major markets to enter a New Normal environment, as Western societies start to save more and spend less. Tomorrow, the blog will look at similar trends that seem to be developing in Europe.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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