In my opinion, the following data do not bode well for increasing home improvement/rehab spend...

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1 Home Improvement/Rehab Trade is Tired... It remains my opinion on home improvement that with... foreclosure completions at an artificial and transitory 5-year low for the election cycle leading to significantly weakening "investor" and "all cash" sales; distressed supply that is all but gone (for now) in the most "bubbly" states leaving "investors" who drive the "recovery" markets -- and the home improvement/rehab activity -- out in the lurch; existing home sales volume that will not hit "escape velocity" and that's running at anemic levels relative to stimulus-goosed 1h2010, which is this years best comp; "new & improved" govt and bank mortgage re-leveraging schemes (HAMP, HARP, HAFA, servicer settlement etc) keeping increased numbers of underwater and over-levered borrowerswith average 65% DTI's in houses (these people don't remodel); the pulled-forward effect of the lack of rain and snowfall in winter 2011/spring 2012 payback the upcoming realization that stimulus-induced short-squeezes/dead-cat-bounces are not what durable recoveries are made of and US housing has years of de-leveraging ahead of it that the big 2011/1h'12 home improvement comps will be increasingly tough to stand up to each quarter. In my opinion, the following data do not bode well for increasing home improvement/rehab spend... 1) Foreclosures at a 5-year low The Home Improvement trade made a lot of sense in 2011 when Foreclosure completions were surging, everybody was "flipping" houses, and they all needed rehab. Now at 5-year lows I suspect the lack of foreclosures will lead to a drag on improvement/rehab spend.

2 2) Annual "home retention" actions (can-kicking) outpaced foreclosure completions 1.75:1 in 2011 and in 2012 is even greater. These are not great home improvement candidates. Can-kicking -- re-leveraging legacy years distressed borrowers -- has turned into a major business channel for banks and servicers. But modified borrowers more levered than Subprime borrowers in %+ DTI average -- with bad credit are not ideal home improvement candidates given they are underwater, over-levered renters in their own house.

3 3) "Investor", "all-cash", and "first-timer" existing home sales YTD are much weaker than commonly thought in Due to seasonality, some pent-up demand, and a 30% YoY plunge in rates, repeat buyer are the strongest cohort yet still very weak by historical standards. This is not an optimal set-up for rehab or home improvement gains, as repeat -- more organic type resales -- generally need a lot less work. For gains in home improvement/rehab strong enough to beat the big comps into year end and 1h'13 I would want to see investor and all cash purchases of distressed property surging.

4 4) In June, Existing Sales under $100k were down 16% YoY. Expanding the range to $250k and under, sales were down 6% in June. This is the price band heart of the improvement segment and this activity does not bode well for increased spend.

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6 5) In the US, 49% of all mortgage'd homeowners do not have enough equity to pay a Realtor 6% and put 15% down on a new house. Being "effectively" underwater -- a Zombie homeowner -- does instill confidence for improvement/rehab spend.

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