US housing enters the New Normal

Chemical companies, Consumer demand, Economic growth, Leverage

US housing Oct10.pngThis is Budget Outlook week in the blog. And for the rest of the week, it is looking at a key issue in a major Region. Today, it highlights the US housing market. This used to be a $35bn market for chemicals, with up to 2.2m housing starts a year, each worth $16k in sales. Now it is worth just $10bn, with recent starts only ~600k.

The above chart, from thechartstore.com, highlights the key issue. A year ago, it was widely assumed that starts would soon recover from these 50-year lows (green and orange lines), as low interest rates and tax credits stimulated demand. But clearly this didn’t happen. Instead, many now worry that rising numbers of foreclosures may lead to further falls in house prices.

Equally, there is increasing evidence that consumer trends have changed from those seen over the past 20 years. Large McMansions are no longer fashionable. And underlying demand growth for new housing has slowed, as lack of cash and fear of unemployment forces families to share homes again.

This suggests that US housing has been one of the first major markets to enter a New Normal environment, as Western societies start to save more and spend less. Tomorrow, the blog will look at similar trends that seem to be developing in Europe.

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