Is the housing industry pausing to catch its breath in the second quarter after a very strong first quarter, or has it crossed the peak and is it now facing the other side of the mountain? There is evidence for both views. Second-quarter starts and permits were down (though from very high first-quarter levels) and interest rates are moving up toward the
8-percent level. On the other hand, completions were up from very high first-quarter levels, and sales and marketing continue to attain record levels.
Housing production in the second quarter was down from the record and near-record levels of the first quarter, though up from last year's second quarter:
Housing marketing and sales continue at record high levels for both new and existing single-family homes.
- Permits were issued at a seasonally adjusted annual rate (SAAR) of 1,595,000 new housing units. This is 7 percent below the first quarter's 13-year high but 4 percent ahead of the second quarter of 1998. Single-family permits were issued for 1,229,000 (SAAR) housing units in the second quarter, down 4 percent from the record-setting level of the first quarter and up 6 percent from last year's second quarter.
- Construction was started on 1,604,000 (SAAR) housing units in the second quarter, down 9 percent from the first quarter but up 2 percent from the second quarter of 1998. Single-family starts were at a seasonally adjusted annual rate of 1,310,000 units, down 6 percent from the first quarter's record-setting level but up 5 percent from last year's second quarter.
- There were 1,662,000 (SAAR) housing completions in the second quarter. This is 2 percent ahead of the first quarter rate and 13 percent ahead of last year's second quarter. Single-family completions increased 4 percent to 1,346,000 (SAAR) housing units in the second quarter. Single-family completions are 17 percent higher compared with the second quarter of 1998.
- Shipments of manufactured (mobile) homes were at a level of 385,000 (SAAR) in the first quarter, unchanged from the fourth quarter of 1998 and up 5 percent from the first quarter of 1998. This is the highest level of manufactured homes shipments since the 1969-74 period.
Housing affordability has declined because rising mortgage interest rates and increasing prices are not being offset by the increasing income. The NATIONAL ASSOCIATION OF REALTORS® Composite Housing Affordability Index was at 134.3, down 4 percent from the first quarter. The decline of the index value results from a 3-percent increase in the median price of existing homes and an 18-basis-point increase in the interest rate, more than offsetting the 1-percent increase in the median family income.
- Builders sold 923,000 (SAAR) homes in the second quarter of 1999, 3 percent above both the first quarter rate and the second quarter rate of 1998. April and June registered the third and fourth highest new home sales rates in the 34-year history of this series and have made the second quarter the second highest quarter ever.
- REALTORS® sold 5,260,000 new homes in the second quarter of 1999, up 1 percent from the first quarter and up 8 percent from the second quarter of last year. This is the highest quarter ever, and the June rate of over 5.5 million is the highest monthly rate ever reported by The NATIONAL ASSOCIATION OF REALTORS®.
- The inventory of new homes increased 4 percent to 312,000 units at the end of the second quarter, but this inventory represents 4.1 months' sales and is unchanged from the end of the first quarter. The inventory of existing homes fell 7 percent to 1,970,000 homes. This inventory represents 4.7 months' sales, down 6 percent from the end of the first quarter.
- The median price for new homes sold during the second quarter was $155,000, down 1 percent from the first quarter but up 4 percent from the second quarter a year ago. Existing homes had a median price of $133,500 in the second quarter, up 3 percent from both last quarter and the second quarter of 1998.
- Builders were slightly more optimistic during the second quarter than they were during the first quarter, according to the Housing Market Index issued by The National Association of Home Builders®. The index combines survey results for builders' views of current sales, future sales, and prospective buyer traffic.
During the quarter the homeownership rate decreased slightly to 66.6 percent from 66.7 percent in the first quarter. Despite the decrease, this is the highest second-quarter rate ever reported and the third highest quarterly rate ever reported.
Multifamily housing (5+ units) registered declines in three of the five indicators included in this report.
- Multifamily permits declined 19 percent to 303,000 (SAAR) units in the second quarter. The decline was only 3 percent from the second quarter of 1998.
- Starts on multifamily units were 266,000 (SAAR) in the second quarter, down 23 percent from the first quarter and down 5 percent from the second quarter a year ago.
- Completions of multifamily housing units stood at 283,000 (SAAR), up 1 percent from the first quarter and up 2 percent from the second quarter of 1998.
- During the quarter 72 percent of the 47,200 unsubsidized, unfurnished, completed apartments were leased-up within 90 days. This is a 1-percentage point decline from the first quarter and a 4-percentage point decline from the second quarter of 1998.
- The rental-vacancy rate averaged 8.1 percent in the second quarter, 0.1-percentage point below the first quarter rate though 0.2-percentage point above the second quarter a year ago.
HUD's field economists report that housing market activity in the first half of 1999 has been very strong in the major markets in their regions. Single-family building permit activity was up substantially in every region but the Northwest, where activity in the first 6 months was only slightly behind the 1998 level for the same period. Local sources in many
areas report that sales activity during the second quarter, which normally slows, was higher than
expected. Sales activity through the second quarter of 1999 has exceeded second-quarter 1998 in many of the major metropolitan areas in the Nation, with every region reporting increased resales activity. Home sales continued to boom in the Southeast and Southwest, up 12 and 11 percent, respectively. In the Pacific region, the annual rate of sales as of the second quarter was up 9 percent. The Las Vegas and Phoenix markets continued to be two of the hottest markets, with double-digit increases in resales over the 1998 volume.
Strong demand for new rental housing continues throughout much of the Nation. Occupancy levels and absorption rates remain relatively high. Multifamily building permit activity for the first 6 months of the year was up considerably in much of the eastern half of the Nation, with big increases recorded in New York/New Jersey, the Southeast, and the Midwest. In the western half of the country, significant declines were recorded in the Southwest, Great Plains, and Rocky Mountain regions. In almost every case, the declines are an adjustment due to the large volume of new apartments that entered the pipeline in 1997 and 1998.
Components of Inventory Change