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.


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