US housing weakens again


US housing continues to weaken as the financial crisis of the past 2 months takes its toll of prospective homebuyers. Yesterday’s Case-Shiller index of house prices showed a “broad-based decline” in September, posting record annual declines of 17%.

Similarly, the above chart from the ACC’s weekly report shows new housing starts (red line) at a record low since they were first recorded in 1959. Building permits (blue line) are a leading indicator of future activity. These also remain weak, and are 40% down on 2007.

In response, the US Federal Reserve has committed $800bn to support mortgage finance. But as the blog has now argued for over a year, such measures do not address the real issue, which is that long-term interest rates are too high. This is because banks are scared to lend to each other, and so the LIBOR rate doesn’t respond to changes in short-term rates.

Nouriel Roubini has some useful suggestions this morning as to what could be done to improve the situation, including the direct purchase of long-term credit instruments by the Fed. The blog hopes that the Obama team is already working on how to put such ideas into practice.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. 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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