According to a recent economic research report from the Portland Cement Association (PCA), Skokie, Ill., the conditions needed for a recovery in housing starts activity to begin will not be in place until mid-2010. Although resets of traditional sub-prime mortgages are expected to reach an apex in mid-2009, exotic mortgages such as Alt-A and option adjustable, will experience a dramatic increase in resets mid-2009 through mid-2010, according to the report. This second wave of toxic resets, says Edward J. Sullivan, PCA chief economist, will accelerate foreclosure rates and add to the large number of foreclosed homes in a crowded market.

“Housing construction activity cannot begin until sales recover,” says Sullivan. “Increased foreclosures, coupled with deteriorating labor markets and tight credit conditions, will delay significant sales activity until mid-2010. Improvements in housing starts are not expected to be significant until 2011.”

Although the housing recovery bill, along with bank efforts to rewrite toxic mortgages will mitigate the magnitude of potential defaults and foreclosures during the next 18 months, PCA expects a weak labor market and declining home prices will increase the number of foreclosed properties being added to the housing market inventory.

“Without further government cash injections into the banking system, tight lending standards could characterize the economy and mortgage lending through mid-2011 dragging down home sales,” Sullivan says. “Under such a scenario, the housing recovery and overall economic recovery could be delayed significantly.”