US homeownership equals all-time low as demand patterns change

Consumer demand


US housing Sept16

It is is 10 years since the US subprime bubble began to burst, with disastrous results for the US and global economy.

The US Federal Reserve  had created the bubble in the belief that higher house prices would boost the economy.  It then made a bad situation into a disaster by refusing to accept that a bubble existed:

  Alan Greenspan, then Chairman of the Fed, told Congress in June 2005, at the height of the bubble:
“Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications
  Ben Bernanke, Greenspan’s successor as Fed chairman, then continued to argue that there was “no housing bubble to go bust

Yet US housing starts have never returned to the 2.0 – 2.3 million/year level seen between 2003 – 2006.  Last month, they were just half this level at 1.1 million/year.

The Fed’s failure has had important implications for US housing policy.  Both President Clinton and President Bush had focused on increasing home-ownership.  When Clinton’s 67.5% target was reached in 2000, Bush was keen to achieve higher levels.  But instead, as the chart shows, ownership peaked at 69.2% in 2005, and then began to collapse as the subprime bubble burst:

  It is now back at 62.9%, equal to the lowest level seen since records began in 1965
  The trend is clearly downwards, and so it seems likely the rate will fall to new lows later this year

US housing Sept16aHousing therefore represents an excellent example of the importance of demographics in driving demand, rather than monetary policy.  Since 2008, the Fed has taken interest rates to their lowest level in history, and printed money at an extraordinary rate, in order to create consumer demand.

But it has completely failed to restore the housing market to its former levels, for the simple reason that demand patterns are driven by issues of lifestyle and affordability – rather than just interest rates.  As the second chart shows, housing starts have not only halved since their 2006 peak, but the type of homes being built has changed quite dramatically:

  Today’s Millennials are not following their Boomer parents in wanting to buy McMansions in the suburbs
  They have much higher debt levels due to the cost of tuition fees, and they are having fewer children
  The recovery in house prices fostered by Fed policy has also reduced their ability to buy single homes
  The Boomers themselves are also no longer so keen on suburban living, and prefer to be town/city-based
  As a result, over a third of all new homes are multi-unit – twice the level seen in the boom years of 1990 – 2007

A new study from Corelogic confirms that affordability issues also impact existing homeowners:

Homeowners making moves out of state are increasingly selling out of expensive markets like California, where price escalation is steep, and buying into lower-cost markets such as Texas and Arizona.  Overall between 2000 and 2015, 2.5 home sellers left California for every out-of-state buyer coming into the state”.

The US housing market thus confirms the profound changes taking place in Western demand patterns. It also highlights the risk of believing that the Fed is able to guide developments in its preferred direction.  Or, indeed, of believing that the Fed has a good grasp of what is actually happening in the real economy.


World Aromatics Conference focuses on key industry challenges


The 15th World Aromatics & Derivatives Conference take place in Vienna on 2...

Learn more

Hope is not a strategy


Chemical companies face difficult times if they cling to the hope that current c...

Learn more
More posts
5 key questions for success in the New Normal

Sustainability rather than globalisation is becoming the key driver for business. And the paradigm s...

US chemical companies face ‘wake-up call’ as Biden focuses on the Climate Change agenda

I worked for many years at a world-leading chemical company, ICI. But sadly, it lost its way as seni...

Plastics producers face a ‘wake-up call’ from both ends of the value chain

Plastics producers have had a great run over the past 60 years, as demand took off for their product...

Smartphone sales confirm mid-market of ‘affordable luxury’ is disappearing

Another 3 months, another decline in global smartphone sales. And more pressure on mid-market player...

Welcome to the New Normal – a look ahead to 2030

10 years ago, I took a look ahead at what we could expect in the next decade, as discussed last week...

If you don’t want to know the future, look away now

Next week, I will publish my annual Budget Outlook, covering the 2021-2023 period. It will highlight...

The Top 5 pandemic paradigm shifts

The Covid-19 pandemic has accelerated the fundamental changes which were already underway in global ...

Hertz goes bankrupt as non-essential consumer demand disappears

The US Federal Reserve has now spent $7tn bailing out Wall Street. But it couldn’t save the 10...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more