The housing recovery began in March 2009 after an 80% drop in starts from the peak level in January 2006. Monthly single family housing starts increased 35% from February to August but are still only 26% of the peak level nearly four years ago. Another 35% increase to 650,000 single family starts is forecast by the end of 2010. Then single family starts will rise 50% to 1.0 million by the end of 2011, still well short of the 1.719 million starts in 2005, the last full year of the housing boom.

The multifamily housing recovery will not begin until early in 2010. This business cycle in this market is more similar to developer financed commercial buildings than single family homes. The condo and coop portion of the market will recover earliest, driven by the same factors now boosting the single family market. The apartment portion will lag as developers will see declining rents and occupancy rates and falling building asset prices into at least early 2010. Multifamily starts will rise 30% by the end of next year and 20% more by the end of 2011. Starts peaked at 354,000 in 2005 and will return to 179,000 in 2011.

Federal pump priming jump started the recovery in the single family market last summer. The federal programs included the $8,000 home purchase tax credit, hundreds of billions of dollars for partial forgiveness of mortgage payments for existing homeowners, moratoriums on foreclosures and aggressive sub-prime mortgage lending by federal housing finance agencies. The tax credit and moratoriums expire soon. The other programs will continue but will not be expanded by a now more deficit-conscious Congress. The pace of recovery is expected to slow late in 2009 and in early 2010. Some monthly declines in starts are likely.

A sustainable recovery in housing will begin next spring a few months after employment begins expanding and when consumer confidence has risen substantially from the current depressed level in the mid 50s. Even so, the recovery will be relatively slow and complete recovery will take many years because the overall economic recovery is forecast to be sluggish and the foreclosure problem will persist for several more years. Mortgage delinquency rates are still rising and may not peak until well into 2010. The deep recession is still adding to foreclosures stemming from 2004-06 subprime mortgages. The Federal housing finance agencies took over the subprime market in 2008 and continue to issue an increasing number of mortgages doomed to be foreclosed in the next few years. Most foreclosures add a home to the already excess number of existing homes for sale.

Key Indicators of the U.S. Market Environment — October 2009 Residential Construction (New and Remodeling)
	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
New Residential
Home Affordability Index (NAR)	125.8	155.5	Aug	159.1	High	Steady
Consumer income growth, % change y/y (U.S. Commerce Dept.)	2.5	2.6	Aug	0.0	Low	Steady
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	-2.4	3.9	Aug	-1.7	High	Falling
Employment change, 000s (U.S. Labor Dept.)	-321	-201	Sep	-263	High	Falling
Household net worth, % change y/y (FRB)	-1.5	-16.8	Q2	-12.3	Low	rising
30-Year fixed mortgage rate, % level (Freddie Mac)	6.10	5.08	Oct 1st 09	4.94	Low	Falling
1-Year ARM mortgage rate, % level (Freddie Mac)	5.12	4.62	Oct 1st 09	4.49	Low	Falling
Consumer confidence index (The Conference Board)	61.4	54.5	Sep	53.1	Low	Rising
Housing market index (NAHB)	17	18	Sep	19	Low	Rising
Homes under construction, 000s (U.S. Census Bureau)	939	612	Aug	595	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	11.1	7.6	Aug	7.3	High	Falling
Existing home inventory, number-of-months supply (NAR)	10.6	9.3	Aug	8.5	High	Falling
Residential Remodeling
Existing home sales, 000s (NAR)	4,930	5,240	Aug	5,100	Low	Steady
Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau)	26,963	23,674	Aug	23,387	Low	Falling
Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau)	8,109	7,492	Aug	7,490	Low	Steady
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	-3.3	-8.4	Aug	-8.7	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	1,334	2,164	Sep 25th 09	2,858	Average	Steady
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.