The end of the US housing dream

US home prices Apr11.pngMost economists still expect a major recovery in US housing markets. This would be very welcome for chemical companies, as housing represented a $35bn market as recently as 2006, when 2.2m new homes were built.

But the above chart suggests they may be over-optimistic. It comes from Yale’s Prof Robert Shiller, who co-founded the authoritative S&P Case-Shiller US house price indices. Originally published in 2005, at the height of the boom, in his famous book ‘Irrational Exuberance’, it shows US home prices in real terms ($2010) since 1890.

The parabolic rise from $116k in 1999 to the $198k peak in 2006 is clearly most dramatic. Since then, it has fallen back to $124k at the end of 2010. This is in spite of major Federal government support in the form of tax incentives etc. And as Barrons, the US investment magazine, notes:

• 23% of home owners (11.1 million) are now in negative equity, where their home is worth less than they paid for it
• There are 3.5 million homes on the market, and 2 million homes either in foreclosure or behind on payments
• Banks are increasing the foreclosure rate, and Barrons suggest as many as 8 million homes may be threatened in total.

A new analysis by ICIS’ Joe Kamalick suggests that “the glory days of the 2003-2006 boom are likely gone for ever“. He suggests a long-term trend towards renting, rather than owning, may now be underway. From the evidence of the Shiller chart, he may well be right.

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.

Leave a Reply