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All but three of the residential market drivers are now negative. The number of new homes under construction is still declining slowly as homebuilders finish scaling operations back to the current sales level. But little if any additional cutbacks appear to be necessary. Home affordability has slipped the last few months with rising interest rates but remains at an exceptionally high level which is not a barrier to home purchases. Rather it is low buyer confidence, depressed home values and the lack of access to mortgage credit for financially marginal households that are restraining home buying. Mortgage refinancing applications have retreated to a modest level and are a measurable brake on residential remodeling spending.

All other residential market drivers are now moving in a positive direction. However, the level of income, confidence and job gains remains very low. Homebuilders and their suppliers have to wait for more gains to accumulate before a surge in residential building begins. This is expected in the next few months. But before then, expect a brief surge in spring market reports as homebuilders rush to finish homes before the end of June deadline for the homebuyer tax credit.

The residential pickup is entirely in single family housing although it does spill over into modest priced condo’s outside of resort areas. Starts of vacation condo’s and apartments remain weak. Recovery will not begin for seven to ten months. Inventories are still very excessive and demand has not yet begun to increase. Second home demand, as always, will not revive until several years in to recovery. Apartment demand follows jobs. Newly hired workers need six months of paychecks to form a new household and move out from friends or relatives homes.

The surplus of existing homes for sale is the major restraint on new home starts. Existing home inventory is falling very slowly due to the continuing flood of foreclosures, including strategic defaults. This problem varies widely by market. It ranges from very minor in housing markets that did not experience excessive price gains in 2004-07 to critical in housing markets in the southeast and southwest that had the highest home price appreciation during the housing boom. Hence, the initial national housing recovery excludes many housing markets.

The types of homebuyers that drove the overheated market in 2005-06 remain largely on the sidelines and will return very slowly. This includes buyers concerned that home prices have not yet hit bottom. While less of a buying restraint in 2010, this is still a significant loss of potential home buyers. The missing also includes all potential buyers motivated in part by prospective capital gains. This restraint has not lessened much in the last few years. The likelihood of large home price increases in the next 2-3 years is very slim. Also among the missing are potential home buyers either under water with their current mortgage or not confident that their income is secure enough to make a long term financial commitment.

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