The housing market improved abruptly in July with another large gain in August. However, most of the reported 4.2% August gain was due to a sharp downward revision of July remodeling spending. This is implausible and may well be revised away shortly as several similar huge month to move changes in this market have been.

We interpret the status this way: Single family is clearly expanding but the initial burst will slow when the temporary fiscal pump priming expires in the fall. There is also a risk of a pause or a cutback a year or two ahead if Congress of the Federal Reserve Board balks at continuing to fund aggressive subprime lending by the federal housing finance agencies.

The multi family market will be slipping lower well into 2010 for all of the reasons that plague other commercial real estate market — high and rising vacancies, low and falling rents and reluctance by lenders to fund projects. The remodeling market will also be slipping lower well into 2010 until home sales have been rising for more than a year and the unemployment rate is dropping. Unfortunately, the measure mechanism at the Census is unable to capture this trend.

Residential construction spending, primarily single family, is forecast to jump14% from the end of 2009 to the end of 2010. This will be driven by a substantial improvement in buyer confidence from again rising employment and income.