Summary

Looking at housing market indicators in the second quarter brings to mind the old question, "But what have you done for me lately?" Most indicators, with the exception of existing home sales and some multifamily items, have worsened. There have been declines from both the first quarter and last year's second quarter, and, in several cases, the monthly numbers have declined throughout the quarter. While production was down, sales were mixed, and inventories were low from a historical perspective. Homeownership rates hit a new record high, although interest rates remained above 8 percent and affordability worsened.

Housing production in the second quarter was weaker than in the first quarter and weaker than in the second quarter of last year. Quarterly levels for permits, starts, and completions have registered declines, and, on a monthly basis, permits and starts have declined throughout the quarter.

  • Housing permits were issued at a seasonally adjusted annual rate (SAAR) of 1,527,000 housing units in the second quarter, which is 9 percent below the first quarter and 7 percent below the second quarter of 1999. This quarterly rate is below the annual rates of the past 2 years but is still in the top third of permit activity over the past 40 years. Single-family permits were issued for 1,143,000 (SAAR) housing units-9 percent below the first quarter and 8 percent below the second quarter of 1999. Since the start of the series, there have been only 3 years with higher totals for single-family permits.

  • Housing starts totaled 1,601,000 (SAAR) during the second quarter of 2000. This total is 8 percent below the last quarter but 1 percent above the second quarter of last year. Historically, such a rate is within the top third of annual levels since 1959. Single-family starts totaled 1,259,000 (SAAR) housing units in the second quarter, which is 6 percent below the first quarter and 3 percent below 1999's second quarter. But, since the start of the series, there have been only 5 years with higher totals for single-family starts.

  • Housing completions totaled 1,635,000 (SAAR) units in the second quarter, 3 percent below the last quarter and 1 percent below the second quarter of 1999. Single-family housing completions were at 1,315,000 (SAAR)-3 percent below the first quarter and 2 percent below the second quarter of 1999. In only 1 year had single-family completions been greater than this level, and that was last year.

  • Manufactured homes shipments during the first quarter totaled 295,000 units-6 percent below the fourth quarter and 23 percent below the first quarter of 1999. This decline continued into the second quarter with declines for April and May.

Housing marketing and sales in the second quarter presented mixed signs. New home sales declined, while sales of existing homes had a strong quarter. Prices were also mixed from the second quarter of 2000-prices for new homes were down, while prices for existing homes were up. Inventories were still at low levels, although they increased from the first quarter. Builders were considerably less optimistic than they were last quarter and last year.

  • Builders sold 853,000 (SAAR) new single-family homes in the second quarter of 2000. This is 8 percent below the first quarter of 2000 and 8 percent below the second quarter of 1999. New home sales declined throughout the quarter. Although new home sales declined, they were not low; only 2 years, 1999 and 1998, had annual sales above this current rate.

  • REALTORS sold 5,067,000 (SAAR) existing homes in the second quarter of 2000, up 5 percent from the first quarter of 2000 but down 4 percent from the second quarter of 1999. Only once (in 1999) have annual sales of existing homes been above 5 million units; therefore, the second-quarter rate is historically high.

  • Prices for new homes dropped from the first quarter of 2000; the median price in the second quarter was $160,000, down 3 percent, while the average price was $201,500, down 1 percent. Compared with prices in the second quarter of 1999, the median price of new homes was up 1 percent, and the average was up 5 percent. The price of a constant-quality new home rose 3 percent to $192,300 in the second quarter and was 6 percent above the constant-quality price in the second quarter of 1999.

  • The median price of an existing home was $137,800 in the second quarter, up 3 percent from both the first quarter of 2000 and the second quarter of 1999. The average price was $175,300 in the second quarter, up 3 percent and 4 percent from the first quarter of 2000 and the second quarter of 1999, respectively.

  • Inventories of new and existing homes increased from the first quarter. There were 327,000 new single-family homes in builders' inventories at the end of the second quarter of 2000, up 2 percent from the first quarter and up 7 percent from the second quarter of last year. This inventory will support 4.9 months of sales, up from last quarter's 4.1 months. The inventory of existing homes was 1,560,000 homes at the end of the second quarter of 2000, up 16 percent from a very low level in the first quarter of 2000 but down 24 percent from the second quarter of 1999. This inventory will support 3.6 months of sales, up from the 3.1 months at the end of the first quarter of 2000.

  • According to the National Association of Home BuildersTM, its members were considerably less optimistic than in the first quarter of 2000 and the second quarter of 1999. During the second quarter, the composite Housing Market Index was at 60, down 7 points from last quarter and down 14 points from the second quarter a year ago.

Housing affordability continued to decline as interest rates remained above 8 percent. The NATIONAL ASSOCIATION OF REALTORS Composite Housing Affordability Index was 126.6 in the second quarter of 2000, down 4.5 points from the first quarter and down 12.8 points from the second quarter of 1999. This decline was the result of a 17-basis-point increase in the interest rate to 8.19 percent and a 3.2-percent price increase not being offset by the 1.3-percent increase in the median family income. The homeownership rate rose to 67.2 percent in the second quarter of 2000, a new quarterly record without regard to this decline in affordability.

Multifamily market conditions showed a little more strength than did the overall market compared with the second quarter of last year but not from the first quarter of this year. Multifamily (5+ units) permits, starts, completions, and rental vacancy rates worsened from the first quarter. Market absorption of new multifamily units improved slightly from the first quarter. Starts, completions, absorptions, and vacancy rates have improved from a year ago.

  • Multifamily permits were issued for 323,000 (SAAR) units in the second quarter of 2000, down 7 percent from the first quarter of 2000 and down 3 percent from the second quarter of 1999.

  • Starts of multifamily units totaled 311,000 in the second quarter of 2000, down 15 percent from the first quarter but up 16 percent from the second quarter of 1999.

  • Completions of multifamily units stood at 290,000 during the second quarter of 2000, down 7 percent from the first quarter but up 1 percent from the second quarter of 1999.

  • In the second quarter of 2000, 75 percent of the 48,500 apartments completed in the first quarter of 2000 were leased. This absorption rate was 1 percentage point above the first quarter rate and 3 percentage points above the second quarter of 1999.

  • The second quarter rental vacancy rate was 8.0 percent, up 0.1 percentage point from the first quarter but down 0.1 percentage point from the second quarter of last year.

Regional Perspective

HUD's field economists reported that sales housing markets across the country remained strong at the end of the second quarter, but volume has slowed compared with the first half of 1999. However, sales of new and existing homes equaled or exceeded the volume of the first 6 months of 1999 in many of the Nation's major markets. Higher interest rates and rising prices had little effect in areas with healthy rates of economic growth. Home sales in the Washington, D.C. metropolitan area were up 7 percent. Chicago's robust economy stimulated an 11-percent increase in new home sales in the first half of the year. Sales in the Rocky Mountain region held strong, and the average sales price in the Denver area was up 15 percent during the first half of the year.

Rental housing market conditions also held firm throughout most of the Nation's major rental markets. Rental markets throughout New England were tight, with a significant imbalance between supply and demand. Despite a high volume of construction in the Virginia suburbs of Washington, D.C., demand for rentals, especially luxury rentals, continued to outpace supply. In the Chicago metropolitan area, apartment vacancy rates were between 4 and 5 percent, and the area continued to attract large amounts of rental housing investment capital.

Apartment building in the Atlanta area was up more than 50 percent, making it the most active market in the Nation during the first half of 2000. Although still balanced, the Dallas-Fort Worth and Houston rental markets became more competitive, and developers cut back production this year. The Austin area, however, remained one of the hottest rental markets in the Nation.

Denver's apartment vacancy rate has remained at approximately 5 percent for the past 5 years. In response to the tightening market conditions, multifamily housing building permits were up more than 50 percent in the San Francisco Bay Area and in the Southern California markets. In the Seattle Metropolitan area, demand for new rentals was strong, but the scarcity of buildable sites restricted production.


The User Cost of Homeownership


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