Despite large cutbacks in single-family building activity and improvements in home affordability, the residential market has yet to stabilize and could
Despite large cutbacks in single-family building activity and improvements in home affordability, the residential market has yet to stabilize and could spur a dip up to 6.5 percent in 2007 cement consumption versus 2006 levels. That potential drop in powder consumption is about three times the decline Portland Cement Association initially projected for this year. In an updated market forecast released late last month, the group noted that high inventory levels and sluggish sales of homes will depress new unit start activity well into 2008.
According to PCA Chief Economist Ed Sullivan, current housing market conditions suggest that the decline in residential construction will be deeper than expected. The magnitude of the single-family sector downturn will play a significant role in determining cement consumption levels this year and next. The consumption decline arising from the single-family sector this year could reach 7.5 to 8 million tons or roughly 30 percent, he says. The spring 2007 forecast had anticipated a 20.5 percent decline from home building-driven powder consumption compared to 2006 levels, equating to 4.5 percent drop in total cement shipments. Single-family housing accounted for nearly 25 percent of U.S. cement consumption in 2005.
Sullivan estimates that the current 4.1 million-home inventory represents an eight-month supply, compared to the industry’s more typical five-month supply target. Because home sales are diminishing, the correction process most likely will continue until the fourth quarter of 2008. Even though single-family housing starts are nearly 30 percent lower than last year, slow sales have diminished builders’ ability to improve the inventory, Sullivan asserts. An expected doubling of the amount of homes entering foreclosure will put additional pressure on the inventory.