Market conditions improved over the last month for new residential housing but continued to worsen for residential remodeling. In the new home market, affordability continued to improve and is now at high level that set off the 2004-06 housing boom. This is the consequence of falling mortgage rates and now rapidly falling home prices and still rising consumer income. However, income growth has slowed. Real income growth declined in February and is expected to be steady to declining for several more months. Also, there was a reduction in the total inventory of homes available for sale.

In the remodeling market, existing home sales have steadied at a low level. Mortgage refinancing applications, which throw off a substantial amount of “cash out” for remodeling, have steadied at an average level. Nonetheless, all of the measures of current activity at remodeling job sites are declining. This includes hours worked on job sites, building supply store sales and wood product shipments.

In spite of this environment the Census Bureau reported a huge jump in February remodeling construction spending. The remodeling data is from a different source. Unlike other construction sectors it does not come from a sampling of work at known job sites but from a consumer survey of remodeling spending. As a result it is frequently put of balance with reported trends in other construction markets. Frequent and substantial revisions are common. The current trend in this market remains fuzzy but it is possible that remodeling work is being done by contractors classified as new home contractors who currently have no orders for new homes. If so, the market drivers tracked here are underestimating the strength in the remodeling market.

Key Indicators of the U.S. Market Environment — March 2008
Residential Construction (New and Remodeling)

	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
New Residential
Affordability — 30-Year mortgage index (NAR)	114	131	Feb	134.6	High	Rising
Affordability — 1-Year ARM mortgage index (NAR)	115.6	134.1	Feb	142	High	Rising
Consumer income growth, % change y/y (U.S. Commerce Dept.)	8.8	4.1	Feb	4.3	High	Steady
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	5.3	-0.6	Feb	0.6	Low	Falling
Employment change, 000s (U.S. Labor Dept.)	177	-76	Mar	-80	Low	Falling
Household net worth, % change y/y (FRB)	8.6	8.1	Q3	7.3	Average	Falling
30-Year fixed mortgage rate, % level (Freddie Mac)	6.18	6.13	W/E Apr 10th	5.88	Low	Falling
1-Year ARM mortgage rate, % level (Freddie Mac)	5.44	5.14	W/E Apr 10th	5.18	Low	Falling
Consumer confidence index (The Conference Board)	108.2	76.4	Mar	64.5	Low	Falling
Housing market index (NAHB)	36	20	Mar	20	Low	Steady
Homes under construction, 000s (U.S. Census Bureau)	1208	1039	Feb	1028	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	8.1	8.4	Feb	9.8	High	Rising
Existing home inventory, number-of-months supply (NAR)	6.9	10.2	Feb	9.6	High	Falling
Residential Remodeling
Existing home sales, 000s (NAR)	6,600	4,890	Feb	5,030	Low	Steady
Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau)	29,143	28,413	Feb	28,372	Average	Falling
Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau)	7,799	7,545	Feb	7,545	Low	Falling
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	-0.6	-4.5	Feb	-3.9	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	2,015	2,448	W/E Apr 4th	2,525	Average	Steady

Abbreviations: y/y = year over year; WE = week ending; ARM = adjustable-rate mortgage;
NAR = National Association of Realtors; FRB = Federal Reserve Board;
NAHB = National Association of Home Builders.
Table: Reed Construction Data and Reed Construction Data - CanaData.