Optimism over the outlook for the US housing market has formed a key part of the global economic Recovery Scenario in recent months, as housing used to be one of the main supports for the economy:
- During the BabyBoomer SuperCycle, large numbers of new houses were required to house the Boomers as they settled down and had children
- After 2001, US Federal Reserve policies enabled homeowners to use their home as an ATM cash machine. They extracted $564bn/year between 2001-5, adding 7% to their disposable income
In turn, of course, these developments were great news for chemical demand. Each new home is worth over $15k in terms of floorings, coatings, sealants, roofing materials, textiles and appliance sales, according to detailed work by the American Chemistry Council. Whilst the extra spending money in the subprime era boosted auto sales and other key areas of chemical demand.
But the latest data for annual housing starts shows little sign of the major improvement that has been forecast. As the chart on the left shows, they were just 923k in 2013 and less than half the 2005 peak of 2.07m. This was despite extended and extensive government support and the Fed’s low interest rates.
Annual starts were never below 1m since records began in 1959. But since 2008, they have never been above this level. And yet somehow the myth persists that suddenly starts will return to SuperCycle levels.
The chart on the left shows why the Demographic Scenario is the key to the outlook. The dream of universal American homeownership is now gone, probably forever, after the disaster of the subprime crisis. Homeownership rates actually peaked 10 years ago in 2004 at 69.2%, and have since been falling steadily:
- Today they are already back at 1996’s level of 65.3%
- Whilst more than 1 in 3 of 18-31 year-olds are now living with parents – levels last seen in the 1970s.
The continued slow housing market is thus further confirmation, if any were needed, that demand patterns are seeing major change as we move into the New Normal economy.