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Cement Shortage Shouldn't Stump Purchase Originations

Demand from China hurting supplies

July 30, 2004


A growing cement shortage in the U.S. has raised some red flags of concern in the homebuilding industry, but it doesn't appear to be impacting the mortgage market.

Booming domestic construction coupled with high consumption in the Pacific Rim -- specifically China -- has reduced the amount of concrete flowing into the United States.

But The Mortgage Bankers Association (MBA) said the housing market remains strong and is not being impacted by the shortage.

In a written statement, MBA forecasts that home sales this year will beat 2003 sales of 7.2 million units by 3.5%. Rising interest rates will eventually slow sales but the cement shortage is not a concern.

"This is a housing market which is moving from historic levels to strong levels over the three-year time horizon," MBA Chief Economist Doug Duncan said in the statement.

MBA is projecting total mortgage originations of $2.5 trillion this year -- $1.1 trillion in refinancings and $1.4 trillion in new originations.

But Frank Nothaft, chief economist for Freddie Mac, is not overly concerned about the cement shortage. He also said it should not dampen mortgage originations.

In an interview, Nothaft said while the shortage may drive up home costs "a bit," he does not anticipate it damaging what has been a record housing construction market.

"I still think single family construction will remain quite vibrant," Nothaft said.

In fact, 2004 is shaping up to be a record year in housing construction, he said.

In 2003 there were about 1.85 million new home built. Freddie Mac projects that 2004 will finish with 1.92 million housing starts, a new record.

"Home construction started the year strong and should finish strong," Freddie Mac says it its latest Economic & Housing Outlook.

"Cement is important for the foundation of the property," Nothaft said. "It's not the largest expense in building a home, but certainly is relevant.

There will be a marginal impact increasing the cost of building a home, and that will be reflected in slightly higher prices, he said.

But Nothaft said a strong demand for cement signals a strong demand for housing, and that's good news to the nation's housing and mortgage markets.

"There is a very strong construction demand globally, and that manifests in a very strong housing market around the world," he said.

Last year, about 108 million metric tons of cement was used in the U.S., according to the Portland Cement Association, a cement industry trade and advocacy group based in Skokie, Ill.

"This spring, shipping rates have skyrocketed and availability of ships is limited," the association said in a statement. "A key element of the limited shipments is the booming Asian economies. Subsequently, these conditions make imports of cement more expensive and difficult to acquire."

Strong demand in China, which produces and uses about 40% of the world's cement, has led to a tightening supplies in some areas of the U.S., according to the National Association of Home Builders (NAHB).

"The U.S. has long relied on imports of cement to supplement limited domestic production capacity," NAHB executive vice president and CEO Jerry Howard said in a statement.

"And as the economic recovery proceeds, demand for this critical building material continues to grow," Howard said.

In letters sent in late May and again in early June, the NAHB urged U.S. Commerce Secretary Don Evans and the Bush administration to "eliminate, at least on a temporary basis, the very high anti-dumping duties imposed on imports of Mexican cement."

"As the situation deteriorates, we urge the administration to take prompt action to help increase supplies and to relieve upward pressure on cement prices, which have soared in recent months," Howard said.

Quoting the Portland Cement Association, Howard said there are cement shortages it 23 states.

Cement is the key ingredient in concrete "and concrete products are essential for the nation's housing," the NAHB said.

"Concrete is used for everything from foundations, driveways and sidewalks to, in some cases, even the full construction of a house," the association said.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]

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