US home prices slip whilst housing trends change

US house pricesDec11.pngUS house prices were the original cause of the financial collapse in Q4 2008. Since then, the politicians have failed to grasp the depths of the problem. Now, the housing market seems about to start on a new downward leg.

The chart shows that prices hit a new low last month, down 33% from the May 2006 peak. The 10-city composite was down 1.1% versus September, and 3% versus a year ago.

The issue is not affordability, given current low interest rates and recent price falls. Rates are just 3.91%, the lowest since records began in 1971. Its rather that housing is in transition to the New Normal described in our free ‘Boom, Gloom and the New Normal’ eBook:

• 2011 single family home sales will be the lowest on record at only 300k
• Housing starts are only 687k, compared to 2.27 million in January 2006

The key, as Bloomberg notes, is that:

“Owners of more than 14 million homes are in foreclosure, are delinquent on their mortgages or owe more than their houses are worth, creating a shadow inventory that is holding down sales and prices”.

Equally, as we describe in chapter 8 of the eBook (to be published at the end of January), underlying US housing trends have changed:

• Young people can no longer afford to move out of the parental home
• Older people, who are living longer, cannot afford residential care
• ‘Multi-generational housing’ is therefore the new growth sector

Lennar, the US’s 3rd largest home builder, is now marketing its range of “Next Gen homes within a home”. It is the first mass-market builder to spot this emerging trend.

The problem is the transition period is likely to be difficult. The recent pause in foreclosures only stabilised the market. Now, it seems set to fall again as foreclosures begin to increase again.

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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