Home affordability is at the housing boom level but permits, starts and sales continue to decline because prospective homebuyers either lack access to credit or the confidence to buy. The recent drop in 30-Year fixed mortgage rates to near 5% will cushion the decline in housing but is not enough to stop it. That will take an end to declining home prices and much improved confidence about income security. Neither is likely in the next two quarters.

President Obama economic program provided very little directly for housing in the spending bill but pending legislation and policy revisions by the Treasury, FHA, Fannie Mae, Freddie Mac and the Federal Deposit Insurance Corporation appear likely to scale back foreclosures very soon. This will boost housing at the expense of the rest of the economy which bears the costs of forgiven mortgage payments. Housing is likely to hit bottom and begin recovery before the rest of construction and the overall economy, probably in about 7-9 months.

Key Indicators of the U.S. Market Environment — February 2009
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)	119.7	138.8	Nov	142.4	High	Rising
Affordability − 1-Year ARM mortgage index (NAR)	123.2	139.9	Nov	147.5	High	Rising
Consumer income growth, % change y/y (U.S. Commerce Dept.)	4.9	-0.9	Dec	-1.2	High	Falling
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	0.6	-2.3	Dec	3.3	High	Rising
Employment change, 000s (U.S. Labor Dept.)	-72	-577	Jan	-598	Low	Falling
Household net worth, % change y/y (FRB)	17.3	-6.7	Q3	-11.1	Average	Falling
30-Year fixed mortgage rate, % level (Freddie Mac)	5.92	5.01	W/E Feb 5th	5.25	Low	Falling
1-Year ARM mortgage rate, % level (Freddie Mac)	5.23	4.95	W/E Feb 5th	4.92	Low	Falling
Consumer confidence index (The Conference Board)	87.3	38.6	Jan	37.7	Low	Steady
Housing market index (NAHB)	19	9	Jan	8	Low	Steady
Homes under construction, 000s (U.S. Census Bureau)	1,055	851	Dec	823	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	9.7	12.5	Dec	12.9	High	Rising
Existing home inventory, number-of-months supply (NAR)	9.7	11.2	Dec	9.3	High	Rising
Residential Remodeling
Existing home sales, 000s (NAR)	4,910	4,450	Dec	4,740	Low	Steady
Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau)	26,994	25,657	Jan	24,260	Low	Falling
Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau)	8,272	7,774	Dec	7,578	Low	Falling
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	-8.0	-6.3	Dec	-11.7	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	3,366	7,414	W/E Feb 6th	2,723	Average	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.