U.S. automakers and home builders, which often experience similar recovery patterns following economic downturns, are following more divergent trajectories this time around, according to a new report published by Standard & Poor's Ratings Services. Overall, auto sales have staged a significant rebound over the past two-plus years, but the market for single-family homes continues to struggle.
The key difference, in Standard & Poor's view, is that while the period before the downturn amounted to a bubble in the overall housing market, especially the new single-family sector, it was still within the bounds of what was considered a "normal" cycle for the automobile -- despite the extended period of highly robust sales growth. In both cases, however, the extended period of low unemployment, robust growth in income, low general interest rates and relatively easy credit terms, all of which contributed to the run-up in consumer demand.
At no point has the volatility of the home-building sector outstripped that of the auto sector more than during the recent downturn. While U.S. light vehicle sales fell 40% from the peak in 2000 to the trough in 2009, total housing starts in 2011 were down 66% from the peak in 2006, and deliveries for currently rated home builders declined 72%. In addition, Standard & Poor's estimates that rated home builder market share (of new-home sales) declined from more than 30% at the market peak to less than 25% at the market trough.
However, there are good reasons to believe that the new single-family home market has bottomed and will improve over the next several years -- albeit gradually, according to Standard & Poor’s. The credit rating agency believes that cyclicality remains for both housing and autos -- even though U.S. auto sales have demonstrated a fairly smooth recovery off 2009 lows, while housing remains sluggish at best.
The complete article, "The Credit Overhang: The Differing Recovery Trajectories Of U.S. Auto Companies and Homebuilders," is available through Standard & Poor’s at globalcreditportal.com.