Changes in US housing values continue to exert a larger and more important impact upon household consumption than do changes in stock market values". That's the conclusion of an important new study by the developers of the main S&P Case-Shiller US House price index.
The chart above, based on US Census Bureau data, shows the current state of play in this critical area. It highlights that starts are still well below anything seen since 1959, when records began. In February, they were down 21% versus 2010, at 479k.
This suggests, to the blog at least, that a new paradigm is developing.
We should no longer automatically assume that US housing, a $35bn contributor to chemical sales at its peak, will quickly recover to earlier levels.The new research by Profs Case, Shiller and Quigley, supports this view. In pioneering work, they analyse the 'wealth effect' produced in the USA when the housing market was rising. It suggests:
• Between 1980-2005, "the value of US housing stock increased $19trn".
• Between 2001-5, at the tail-end of this Boom, US homeowners extracted $3.5trn of this value to support their personal spending.
• Much of this money went directly into areas that boosted chemical demand, as people bought new kitchens and bathrooms, and new autos.
But now, it appears that this great engine of growth has reversed.
US housing wealth is already down 30% since 2005, as prices have fallen. And the outlook is for further decline. The blog will continue to watch this critical sector with great attention.
Update: Today's S&P/Case-Shiller house price index for January showed a further fall, taking prices very close to their April 2009 lows. S&P warned that "the feared double-dip recession may be materializing".