US housing starts disappoint, again

US housing May11.pngUS housing used to be one of the largest chemical markets in the world. In 2006 it was worth $35bn, with 2.2 million new homes each using $16k of chemicals, according to American Chemistry Council (ACC) estimates.

Yet as the chart above shows, it has completely failed to recover since the financial crisis began:

• Last month, housing starts (purple) were just 523k
• Building permits (red) were only 575k

Yet April should be one of the strongest months in the year, as the weather improves and people think about moving home.

These figures prompted an interesting question to the blog from a major investor this week. He asked, ‘how can we see a proper recovery in the US economy, if housing doesn’t recover?’ Its a good question, and one that has so far not been widely discussed.

Instead, most continue to believe a recovery is just around the corner. The excellent ACC weekly report, for example, reports today that the consensus view amongst leading US economists is:

• Housing starts will total 620k this year, and rise 39% to 860k in 2012.
• 6 months ago, however, the same economists forecast 780k starts this year, and 1.44 million in 2012.

This suggests, to the blog at least, that the forecasters are in denial about what is really happening in the housing market. In turn, of course, this raises question marks about likely future levels of US chemical demand.

John Richardson and I set out to tackle this key issue in our new eBook, ‘Boom, Gloom and the New Normal’, to be published on Monday.

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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