Single family housing market indicators generally improved in the last few months and now signal a strong start to the housing recovery in the spring but with the level of construction activity still at a deep recession level. Both the multi family and remodeling markets continue to decline with recovery not expected to begin until well into 2010. Macroeconomic indicators paint a similar picture; a 3% rise in GDP is expected during the summer and then a fallback to slower economic growth through next year.

The 20% surge in housing starts from April to July was spurred by federal fiscal pump priming directly in the housing market and generally in the overall economy. These are temporary measures which will not sustain a continuing recovery at the initial pace but will sustain housing below the depressed level reached early in the spring.

The temporary boosts to single family housing included the federal $8,000 tax credit for first time home buyers, several similar state programs now expired and several programs to prevent or delay foreclosures. Fewer foreclosures meant less competition for homebuilders with discount priced existing homes. Most of the state foreclosure moratoriums have now expired. The federal subsidies to mortgage payments are continuing but the month to month rise in spending for these programs is ebbing so the boost to home buying is also ebbing.

Monthly housing starts from August to December will average slightly higher than the June/July level but one or two month-to-month declines should be expected as well as the usual large monthly changes in multi family starts. Both of the remodeling tracking indicators show continued decline at a slowing pace. This is broadly consistent with the Census Bureau.

The successful federal efforts to jump start the single family market come at the expense of a sustained strong housing recovery. The $8,000 tax credit has “borrowed” some home sales and starts from the 2nd half of 2009. Also, the restructuring of mortgage payments with lower interest rates and/or lower loan balances yet to be paid is only postponing many loan defaults from 2009 to 2010-2011. Recent experience suggests that as many as half of the restructured mortgages will eventually default. This will stretch out the foreclosure problem — discount price existing homes competing with new homes — into 2012 and possibly beyond.