US housing starts are slowing so far this year, with February’s starts just below the million level again on an annualised basis. This follows the steadily declining rate of home ownership, which is now back at 1995′s level of 64%. And yesterday’s Case-Shiller report on home prices suggests the 10-City Index may well have peaked back in August.
The chart above looks at these developments in a longer-term context:
- It compares housing starts on the vertical axis with auto sales on the horizontal axis
- It is colour coded, so the years from 2000 – 2007 are in red, and the period since 2008 in green
- It confirms that housing starts remain well below subprime era levels: auto sales only caught up last year
- This weaker performance has occurred despite major support in terms of low interest rates and subsidies
2007 was the worst year in the early period. But it still managed 1.4 million starts and 16m auto sales. 2014 was the best year in the later period, but starts were only 1m, although auto sales matched the 16m level. And the best year since 2000 was in 2005, which saw 2m starts and 17m auto sales.
Equally worrying is that both markets are also showing clear signs of underlying weakness:
- Multi-home starts are now a third of total starts, something not seen since 1974
- More than 4 out of 5 auto sales are now bought with credit or leased, with an average term of 5 1/2 years
Both markets are critical to the US economy, and to the US chemical industry. The average car uses around $3.5k of chemicals, and the average new home around $15k, according to American Chemistry Council data.
Yet cars that are sold on 5 1/2 year leases won’t be replaced until the year 2020. And building multi-home apartment blocks typically requires only half the materials of a single home.
This weakness, combined with the impact of the oil price collapse, is confirmed by the Atlanta Federal Reserve’s new GDP Now index, as the chart shows. This aims to provide a real-time snapshot of US GDP. It was registering Q1 growth of just 0.2% on Monday.