Home sales, prices and starts appear to be stabilizing, the best recent news about the economy, but homebuilders will continue to reduce spending on residential construction job sites for a few more months and residential remodeling spending continues to decline. March construction spending dropped 8.5% from February for single family homes. Some of the decline was due to cautiously delaying work in homes already started until the homes were sold. Some of the decline was due to still falling materials prices. Much of the decline was due to the bankruptcy of homebuilders or cash flow forced work slowdowns resulting from lost credit lines.

Residential construction spending is forecast to fall 28% in 2009 and recover 9% next year. Within a year, residential will be the fastest expanding construction sector and will hold this rank for several years. Residential construction spending is forecast to increase 20% from mid-2009 to the end of 2010. but this only bring activity back to about half of the normal level.

The Home Affordability Index is now at an astonishingly high 173.5. This is far above the level when housing starts were four times the current pace. However the buying equation has two terms: affordability and confidence. The Conference Board’s Consumer Confidence Index jumped in April from 26.9 to 39.2. This may be the starts of a slow but progressive recovery in willingness to buy. At worst it probably signals that the steep plunge in buyer confidence is over.

U.S. Residential Building Construction
(thousands of units)

(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
Manufactured home data is for November and December.
Forecasts and table: Reed Construction Data.