All of the drivers of residential construction, except home affordability, remained weak in the last month with some worsening slightly. The only good news was the $0.40/gal. drop in gasoline prices which halted the steep slide in consumer confidence. If gasoline prices hold at this level or drop further, there will be a measurable boost to home sales and, eventually, home construction.

Data from RealtyTrak on the geographical distribution of foreclosed home list for sale emphasizes the huge regional differences in the economic environment for housing. Together, California and Florida have about 110,000 foreclosed homes for sales. Most are empty. Most are available at deep discounts, sometimes as high as 50%. This inventory surplus will force housing starts even lower in these states and delay a rebound in housing starts until many months after home sales resume rising. Four states have less than 100 foreclosed homes for sale. Vermont has only 3. A turnabout in home sales set off by improved confidence will cause an instant rebound in housing starts in states with very little surplus inventory of home for sale. Housing starts will be rising in a majority of states before the national housing starts total begins to rise.

Key Indicators of the U.S. Market Environment — Aug 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)	104.6	124.9	June	118.4	High	Falling
Affordability − 1-Year ARM mortgage index (NAR)	107.1	131.5	June	125.6	High	Falling
Consumer income growth, % change y/y (U.S. Commerce Dept.)	3.8	5.4	June	7.4	High	Rising
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	-0.8	7.1	June	11.2	High	Rising
Employment change, 000s (U.S. Labor Dept.)	57	-51	July	-51	Low	Falling
Household net worth, % change y/y (FRB)	6.1	7.4	Q1	3.4	Average	Falling
30-Year fixed mortgage rate, % level (Freddie Mac)	6.57	6.26	W/E Aug 18th	6.52	Low	Rising
1-Year ARM mortgage rate, % level (Freddie Mac)	5.67	5.1	W/E Aug 18th	5.18	Low	Steady
Consumer confidence index (The Conference Board)	-0.8	7.1	July	11.2	High	Rising
Housing market index (NAHB)	22	16	Aug	16	Low	Steady
Homes under construction, 000s (U.S. Census Bureau)	1,144	971	July	955	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	8.3	10.4	June	10	High	Rising
Existing home inventory, number-of-months supply (NAR)	9.1	10.8	June	11.1	High	Rising
Residential Remodeling
Existing home sales, 000s (NAR)	5,750	4,990	June	4,860	Low	Falling
Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau)	28,421	27,923	July	28,008	Low	Steady
Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau)	8,114	8,066	June	8,216	Low	Rising
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	0.4	-5.5	June	-3.9	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	1,806	1,392	W/E Aug 15th	1,034	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.