US housing starts fall as the BabyBoomers get older

Chemical companies, Consumer demand, Economic growth, Financial Events, Leverage

US housinga Sept11.pngUS subprime lending was the starting point for the economic crisis now spreading around the world. The blog believes a key cause was policymakers refusal to accept that the ageing of the BabyBoomers (those born between 1946-70) would cause a major change in demand patterns.

Instead, they have continued to believe that underlying levels of housing demand are the same today as in 1970-2000, when the Boomers were settling down and having children. Their idea is that ‘housing demand is a constant’. They will not accept that ageing Boomers no longer need to buy new homes to house growing families.

Thus Fed Governor Sarah Bloom Raskin set out their thinking this week:

“The conventional tool of monetary policy is to modify the near-term path of interest rates…. This policy accommodation also tends to raise household wealth by boosting the stock market and prices of other financial assets. With greater household wealth and cheaper borrowing rates, consumers tend to increase their purchases of houses, cars, and various other goods and services.”

Yet the chart above, based on US Census data, clearly shows that the policy has failed:

• Housing starts (purple) and building permits (red) remain well below anything seen since statistics began in 1959.
• Starts were just 571k in August, and permits only 620k.

This surely represents a generational shift in demand patterns.

Any scientist or engineer, faced with this situation, would re-examine their assumptions. They might well, like the blog, notice that a record 25% of the US population is now over 55 years old. Just 17% were in this cohort back in 1950. And the percentage is rising by 1% every 5 years.

Equally, this refusal to consider other factors is creating great pain for more and more Americans. Their equity in their homes has declined 54% since 2006 from $13.5trn to $6.3trn. 1 in every 5 Americans owes more on the mortgage than the home is worth.

We are now moving into Budget period for most companies. The blog believes it is vitally important that they include their own assessments of the outlook. It fears that the global economy is increasingly threatened by these failed policies.

• On Tuesday, it will outline a 4-point Action Plan for companies to review
• On Wednesday, it will propose 4 key Scenarios for discussion
• On Thursday, it will highlight 5 Critical Success Factors, to help guide implementation plans.

Sadly, it is becoming clear that we cannot rely on wise and far-seeing policymakers to guide the global economy in the right directions. In turn, this may mean that we all need to prepare for increasingly turbulent times ahead.

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