All of the marker drivers for residential construction are now neutral or negative. However, this does not lead to a conclusion that the market has further to fall. More likely, the market is at the bottom with an upturn, albeit slow and week, soon ahead. This is because home prices have plunged enough in the most overbuilt housing market that the decline in sales has ended with the recent surge in sales to buyers whop patiently waited for this situation, including speculators who anticipate higher prices in the next year. The 6% plus pickup in pending home sales in April — most of which will be May sales — assure no further significant decline in the pace of sales later in the spring.

The end of the housing decline at the job site does not mean immediate good news for the real estate market or to homeowners who can not now afford their mortgage payments. The downstream pain will continue for some time.

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.)	8.9	4.7	Apr	4.6	High	Steady
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	4.1	1.8	Apr	2.2	Low	Falling
Employment change, 000s (U.S. Labor Dept.)	162	-20	Apr	0	Low	Falling
Household net worth, % change y/y (FRB)	6.1	7.4	Q4	3.4	Average	Falling
30-Year fixed mortgage rate, % level (Freddie Mac)	6.26	5.92	W/E May29th	6.08	Low	Steady
1-Year ARM mortgage rate, % level (Freddie Mac)	5.52	5.19	W/E May29th	5.22	Low	Steady
Consumer confidence index (The Conference Board)	108.5	62.8	May	57.2	Low	Falling
Housing market index (NAHB)	30	20	May	19	Low	Steady
Homes under construction, 000s (U.S. Census Bureau)	1,184	1,004	Apr	997	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	7.4	9.8	Apr	10.6	High	Rising
Existing home inventory, number-of-months supply (NAR)	8.5	9.9	Apr	11.2	High	Rising
Residential Remodeling
Existing home sales, 000s (NAR)	5,930	4,940	Apr	4,890	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)	8,498	8,081	Apr	8,099	Low	Steady
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	0.5	-2.9	Apr	-5.0	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	1,875	1,905	W/E May 30th	1,496	Low	Falling

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.