Overall the housing sector had a very strong second quarter of 1998 following a very strong first quarter. If the current level of activity continues, 1998 will be a banner year, with several new records being set. The second quarter's production pace was not as vigorous as the first quarter's, but was still at high levels. Marketing in the second quarter was ahead of that in the first quarter. Housing permits and starts were slightly below the last quarter, sales of both existing and new single-family homes continued to set new records, the composite builders' outlook index set a new record, interest rates are unchanged from last quarter, affordability continues to be favorable, inventories of unsold homes are low, and price changes were generally moderate.
Housing production in the second quarter of 1998 is off slightly compared with a very vigorous first quarter, but is significantly ahead of 1997's second quarter.
Housing affordability continues at historically high levels though it decreased slightly from the first quarter. Such high levels of affordability account for robust marketing. The second quarter saw new record levels of sales, very low inventories, generally moderate prices, and positive views for the future.
- Permits in the second quarter decreased by 4 percent from the first quarter of 1998 to a seasonally adjusted annual rate (SAAR) of 1,526,000 homes, which is still 8 percent ahead of the second quarter of 1997.
- Second-quarter starts decreased by 1 percent from the first quarter of 1998 to 1,564,000 housing units (SAAR). This was a 7-percent increase from the second quarter of last year.
- Manufactured homes shipments in the first quarter of 1998 increased from both the fourth quarter of 1997 and the first quarter of 1997 to 371,000 housing units (SAAR).
Low interest rates and affordability continued to be the keys to the active housing market. Interest rates on 30-year, fixed-rate mortgage loans averaged 7.09 percent in the second quarter of 1998, up 4 basis points from the first quarter but down 84 basis points from the second quarter of 1997. The NATIONAL ASSOCIATION OF REALTORS'® Composite Housing Affordability Index decreased 3 percent from the first quarter to 130.7 but increased 5 percent from the second quarter of 1997. These conditions continue to support record levels of homeownership -- 66 percent of American households now own their own homes.
- Existing home sales, which continue to set new monthly records, reached 4,773,000 homes (SAAR) in the second quarter of 1998, 2 percent ahead of the first quarter of 1998 and 16 percent ahead of the second quarter a year ago.
- New home sales increased 6 percent in the second quarter of 1998 to 909,000 homes (SAAR). June's sales set a new record and was the tenth month in a row with sales of more than 800,000 homes (SAAR).
- Placements of new manufactured homes were at a seasonally adjusted annual rate of 294,000 in the first quarter of 1998, 2 percent above the fourth quarter of 1997 but 13 percent below the first quarter of 1997.
- Inventories of new homes available for sale were up slightly to 287,000. In terms of months' supply, a new record low was set in June: 3.7-months' supply at the current sales rate. June was the 18th month in a row in which the months' supply remained below 5 months. Existing home inventories at the end of the second quarter were 2,080,000 homes, a 5.3-months' supply at the current sales rate.
- Median prices for new homes decreased 3 percent over the quarter to $147,900, and the average price decreased 1 percent to $178,900. Increases from the second quarter of 1997 were 1 percent for both the median and average prices. The price for a constant-quality new home, $172,700, was unchanged over the quarter and 1 percent above the second quarter of last year. Prices for existing homes increased compared with the last quarter, with a 4-percent increase in the median, to $131,100, and a 5-percent increase in the average price, to $164,000. Increases from last year were 6 percent for both median and average prices.
- Builders were upbeat. The National Association of Home Builders' Housing Market Index rose 4 points from the last quarter to 69, reflecting improved builders' views of current sales, future sales, and prospective buyer traffic. The second quarter included June's record-setting value of 71.
The multifamily (5+ units) market saw declines in production and increased vacancy rates but improved absorption of new apartments.
- Multifamily starts, at 282,000 units (SAAR), were down from last quarter and last year -- 2 percent below last quarter and 7 percent below the second quarter of 1997. Multifamily permits were mixed -- down 12 percent from last quarter but up 8 percent from the second quarter of 1997.
- In the second quarter, 77 percent of the 44,900 new, unsubsidized, unfurnished rental apartments completed in the prior quarter were leased. This was an increase in the absorption rate from 72 percent in the first quarter of 1998.
- The second-quarter rental vacancy rate increased to 8 percent, an increase of 0.3 percentage point from the first quarter of 1998.
HUD's field economists report that the regional economies continue to expand, and housing markets remain healthy through the first half of 1998. Employment growth has been especially strong in the Southeast, Southwest, and Pacific. The Pacific, on the strength of continued improvement in California, added more than 560,000 jobs in the 12-month period ending in June, pushing growth in the region to 3.4 percent. Unemployment rates have declined further, and tight labor market conditions are reported in many areas.
All regions reported increases in building permits for single-family homes during the first half of the year compared with the same period last year. The Southwest led with a 21-percent increase, spurred by the 26-percent gain in Texas. The New England and New York/New Jersey regions also recorded big gains of 16 and 14 percent, respectively, in single-family building permits. In Phoenix, single-family construction levels are exceeding last year's record pace.
Substantial increases in home sales activity of 20 per-cent or more above last year are being reported in many metropolitan areas. Resales in New England were up 20 percent in the first quarter and are approaching the peak sales of the 1980s. Existing home sales in the Richmond, Virginia area through May were up 40 percent from 1997 levels for the same period. New home sales in the Washington, D.C. metropolitan area through June were up 20 percent. Activity in the Atlanta market shows no sign of abating, and new home sales are setting records in the area's northern suburbs. Sales volume in the San Francisco Bay Area hit all-time highs in seven of the area's nine counties from May 1997 through May 1998.
Apartment occupancy in the major rental markets in the Southeast and Southwest remains high, and the increased supply of new apartments is being leased-up at a good rate. Multifamily housing building-permit activity was up in every region except New York/New Jersey and the Midwest. Activity in the Southwest was up 26 percent over 1997 volume. Rental housing markets continued to tighten throughout New England, stimulating apartment construction, albeit at relatively low levels.
Increased demand for sales and rental housing of all types is being reported in central city neighborhoods. New homes in the mid- and upper-price ranges have sold well in Detroit and Chicago. In Washington, D.C., single-family homes, town-houses, and condominiums are planned in 14 sep-arate developments, the first major activity since 1975. Active condominium and rental markets are being reported in Philadelphia, Pittsburgh, Cleveland, and Chicago. Several high-density rental developments are in planning stages in Atlanta.
HUD Prepares To Set New Housing Goals