In 2003 the housing sector continues to show the very high levels of production (permits, starts, and completions) and sales activity that marked 2002, particularly in the single-family market. New and existing housing sales are at or near record-setting levels, and with mortgage interest rates and affordability more favorable than seen in the past 30 to 40 years, increasing numbers of American families can now afford to purchase a home. The multifamily market had reasonable levels of production in the first quarter but is showing signs of weakening. The rental sector experienced a difficult first quarter, with the absorption rate of new rental apartments at a historic low and the overall rental vacancy rate at an all-time high.

Housing production in the first quarter of 2003 was down slightly from the fourth quarter but up slightly from the first quarter of 2002. The single-family market showed real strength with production at near-record levels. Although total permits and single-family permits were down from the fourth quarter, single-family permits reached the second highest level ever reported, right behind the record set in the fourth quarter of 2002. Total housing starts and single-family housing starts were unchanged from the fourth quarter, but single-family starts were at the eighth highest level ever reported. Total and single-family completions were down slightly from last year’s fourth quarter, but single-family completions were at the ninth highest level ever reported. The manufactured housing industry, however, continues to post some of the lowest levels of shipments in more than 40 years.

• Builders took out permits for new housing units at a seasonally adjusted annual rate (SAAR) of 1,758,000 units in the first quarter of 2003, down 2 percent from the fourth quarter of 2002 but up 4 percent from the first quarter of 2002. Single-family permits totaled 1,346,000 (SAAR) units in the first quarter of 2003, down 3 percent from the record set in the fourth quarter of 2002 but up 3 percent from the first quarter of 2002. This first-quarter value is the second highest reported in the 43-year history of this series.

• Construction started on 1,753,000 (SAAR) new housing units in the first quarter of 2003, nearly the same as in the fourth quarter of 2002 and up 2 percent from the first quarter of 2002. Single-family starts reached 1,413,000 (SAAR) units in the first quarter of 2003, nearly unchanged from the fourth quarter of 2002 and up 3 percent from the first quarter of 2002, marking the eighth highest level for single-family starts in the 44-year history of this series.

• In the first quarter of 2003 construction was completed on 1,645,000 (SAAR) new housing units, down 1 percent from the fourth quarter of 2002 but up 2 percent from the first quarter of 2002. Single-family completions reached 1,322,000 (SAAR) units in the first quarter, down 2 percent from the fourth quarter of 2002, down 1 percent from the first quarter of 2002, and the ninth highest level reported in the 35-year history of this series.

• Manufactured housing producers shipped 132,000 (SAAR) housing units in the first quarter of 2003, down 12 percent from the fourth quarter of 2002 and down 27 percent from the first quarter of 2002. Shipments have not been this low since the early 1960s.

Housing marketing and sales were very strong in the first quarter of 2003 with record and near-record sales. Although new home sales were down, they were still at the second highest level ever reported, right behind the fourth quarter of 2002. Existing home sales, at 5.8 million (SAAR) units, set a quarterly record, and sales of 6.1 and 5.9 million (SAAR) homes in January and February, respectively, were the first and second highest monthly rates. New home prices declined from the fourth quarter of 2002, and existing home prices were unchanged. Inventories of homes available for sale are still reasonable at 4.1 months for new homes and 5 months for existing homes.

• Builders sold 977,000 (SAAR) new single-family homes in the first quarter of 2003, down 5 percent from the fourth quarter of 2002 but up 8 percent from the first quarter of 2002. This sales volume is the third highest ever, following the record set in the fourth quarter of 2002. In fact, sales volumes in the past five quarters are the highest in the 40-year history of this series.

• REALTORS^® sold 5,830,000 existing homes in the first quarter of 2003, 1 percent above both the fourth and first quarters of 2002. The sales volume in the first quarter of 2003 is the highest quarterly level ever reached, and sales of 6.1 million in January and 5.9 million in February were the first and second highest monthly values in the 34-year history of this series.

• New home prices decreased in the first quarter. The median price of a new single-family home was $180,200 in the first quarter of 2003, 5 percent below both the fourth and first quarters of 2002. The average price was $227,300, down 2 percent from the fourth quarter of 2002 but unchanged from the first quarter of 2002. The estimated price for a constant-quality house was $213,700, unchanged from the fourth quarter of 2002 and up 3 percent from the first quarter of 2002.

• Existing home prices changed little from the fourth quarter according to data from the NATIONAL ASSOCIATION OF REALTORS^® (NAR). The median price for an existing home was $161,500 in the first quarter of 2003, unchanged from the fourth quarter but up 7 percent from the first quarter of 2002. The average price of an existing home was $204,300 in the first quarter of 2003, up 1 percent from the fourth quarter and up 7 percent from the first quarter of 2002.

• Inventories of new homes were unchanged and those of existing homes increased in the first quarter of 2003, although they remain reasonable compared with sales activity. At the end of the first quarter 339,000 newly constructed homes were available for sale, unchanged from the fourth quarter of 2002 but up 7 percent from the first quarter of 2002. At the current sales rate this inventory will support 4.1 months of sales, up 0.3 month from the fourth quarter of 2002 but down 0.1 month from the first quarter of 2002. The inventory of existing homes available for sale at the end of the first quarter of 2003 consisted of 2,310,000 housing units, up 8 percent from the fourth quarter of 2002 and up 10 percent from the first quarter of 2002. This inventory will support 5 months of sales, up 0.7 month from the fourth quarter of 2002 and up 0.4 month from the first quarter of 2002.

• The National Association of Home Builders™ Housing Market Index indicates that although builders are less optimistic in the first quarter of 2003 than in the fourth quarter of 2002, their attitudes are similar to those they held during the first quarter of 2002. The composite index for the first quarter of 2003 was 59, down 5 points from the fourth quarter of 2002 but unchanged from the first quarter of 2002. All three components of the index—current sales, expected sales, and prospective buyer traffic—were down by approximately 5 points each.

In the first quarter of 2003 housing affordability improved to its best level in 30 years according to housing affordability indexes published by NAR. Interest rates are at record lows, family incomes are increasing, and home-price increases are modest. The composite index indicates that a median-income family had nearly 144 percent of the income needed to purchase the median-priced existing home using standard lending guidelines, up 3.7 percentage points from the fourth quarter of 2002 and up 7.1 percentage points from the first quarter of 2002. This improvement is due to a 21-basis-point decline in the mortgage interest rate and a 0.7-percent increase in the median family income, which heavily outweighed the 0.3-percent increase in the median price of existing homes sold in the first quarter. Increased affordability and low interest rates have maintained the homeownership rate at historically high levels. The homeownership rate in the first quarter of 2003 was 68 percent, down 0.3 percentage point from the fourth quarter of 2002 but up 0.2 percentage point from the first quarter of 2002.

The multifamily (5+ units) sector had reasonable production with permits down slightly, starts up slightly, and completions unchanged. There are some ominous signs in the multifamily market, however. Market absorption of new multifamily apartment units is at a near-record low with almost half of new rentals on the market for 3 months without being leased. Not only are new units remaining vacant, but the overall rental vacancy rate is at a record high of 9.4 percent.

• In the first quarter of 2003, builders took out permits for 335,000 (SAAR) multifamily housing units, down 3 percent from the fourth quarter of 2002 but up 6 percent from the first quarter of 2002.

• Multifamily housing starts totaled 304,000 (SAAR) housing units in the first quarter of 2003, up 1 percent from both the first and fourth quarters of 2002.

• Completions of multifamily housing reached 283,000 (SAAR) units, unchanged from the fourth quarter of 2002 but up 11 percent from the first quarter of 2002.

• In the fourth quarter of 2002, 48,000 new multifamily apartments were completed, and in the first quarter of 2003, 55 percent of these units were leased up or absorbed by the market. This absorption rate is down 2 percentage points from the fourth quarter of 2002, down 3 percentage points from the first quarter of 2002, and far lower than the historical annual absorption rate, which has ranged from a low of 63 percent to a high of 82 percent.

• The rental vacancy rate in the first quarter of 2003 was 9.4 percent, up 0.1 percentage point from the revised value for the fourth quarter of 2002 and up 0.3 percentage point from the revised value for the first quarter of 2002. This vacancy rate is the highest since the beginning of the series in 1956.