A marginal rise in the homebuilders’ survey based index of market expectations was the only positive economic development for residential contractors in the last month. All other market drivers are weakening except for nominal consumer income which is currently misleading due to drain on income from high fuel prices.

The small rise in the homebuilders’ survey probably reflects higher expectations for market conditions beyond a few months in response to the accelerated declines in job site activity and home prices, both essential to stopping the downturn in the housing market.

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.

Homebuilders have taken remodeling contracts that they were too busy to do a few years ago. As a result, the decline in hours worked reported for remodeling contractors underestimates the amount of remodeling work underway. This is confirmed by the Census Bureau estimates of remodeling spending, 10% above a year ago, that are derived from surveys of consumers about what they spent on remodeling.

Key Indicators of the U.S. Market Environment — May 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)	113	134.8	Mar	129.6	High	Falling
Affordability — 1-Year ARM mortgage index (NAR)	115.5	142.3	Mar	137.4	High	Falling
Consumer income growth, % change y/y (U.S. Commerce Dept.)	10.0	4.4	Mar	4.4	High	Steady
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	5.4	0.5	Mar	1.4	Low	Falling
Employment change, 000s (U.S. Labor Dept.)	46	-81	Apr	-20	Low	Falling
Household net worth, % change y/y (FRB)	6.1	7.4	Q3	3.4	Average	Falling
30-Year fixed mortgage rate, % level (Freddie Mac)	5.92	5.88	W/E May 8th	6.05	Low	Rising
1-Year ARM mortgage rate, % level (Freddie Mac)	5.19	5.18	W/E May 8th	5.29	Low	rising
Consumer confidence index (The Conference Board)	106.3	65.9	Apr	62.3	Low	Falling
Housing market index (NAHB)	30	20	May	22	Low	Rising
Homes under construction, 000s (U.S. Census Bureau)	1,190	1,025	Mar	1,002	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	8.3	9.5	Mar	11	High	Rising
Existing home inventory, number-of-months supply (NAR)	7.5	9.6	Mar	9.9	High	Falling
Residential Remodeling
Existing home sales, 000s (NAR)	6,110	5,030	Mar	4,930	Low	Steady
Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau)	27,725	26,649	Apr	27,126	Low	Falling
Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau)	7,509	7,502	Mar	7,544	Low	Steady
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	0.9	-3.3	Mar	-2.8	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	2,115	1,906	W/E May 2nd	2,274	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.