U.S. Housing Market Conditions 2nd Quarter 1996 August 1996 SUMMARY The housing industry has experienced an interesting second quarter. Although housing production, especially for single-family homes, was up over the same period last year, mortgage interest rates and housing prices were rising and affordability was declining. Despite these factors, new and existing home sales were strong, and homeownership reached levels not seen for 15 years. Most of the housing production figures were impressive. Permits were up 14 percent over a year earlier, with single-family permits up 17 percent. Housing starts increased 15 percent over last year, with single-family starts up 17 percent. Multifamily housing production (five or more units in structure) did not fare as well as single-family production; permits rose modestly over last year and starts were essentially unchanged. Manufactured (mobile) home shipments were up 6 percent over last year. Housing marketing also performed very well. Builders were more upbeat about current sales, buyer traffic, and prospects in the next 6 months than they were a year ago. In the first 6 months of 1996, new home sales were above the 700,000-unit annual rate; the last time this level of sales activity occurred was from November 1986 through April 1987. Existing home sales reached a record high in the second quarter (the May sales rate of 4.28 million units at an annual rate exceeded the previous record of December 1993) and were 16 percent above the same period last year. Manufactured (mobile) home placements in the second quarter, on an annual basis, were about 9 percent higher than the 22-year record set for all of 1995. Mortgage interest rates rose almost two-thirds of a point from the end of the first quarter to the end of the second. Median new house prices reached a record monthly high of $140,000 twice in the second quarter; median existing house prices topped $120,000 for the first time ever in June. While the new house price index for a constant quality house was up only 2 percent over the year, the repeat sales price index (new in this issue) rose more than 5 percent. The existing housing affordability index fell 9 percent from the end of the first quarter to the end of the second. Some observations can be made about these apparently conflicting trends. First, the economy was performing well--employment was up, unemployment was down, and wages and salaries showed real growth not seen in years--so that increasing consumer confidence was buoying the sales market. Second, buyers were relying more and more on adjustable-rate mortgages, which had rates more than 100 basis points lower than conventional fixed-rate mortgages, to ameliorate the costs of rising interest rates. Third, declining affordability may have been spurring potential buyers into action before their window of opportunity closed. Would-be buyers who had been hesitating apparently decided it was "now or not for the foreseeable future," and were entering the market. This added demand put upward pressure on prices and encouraged builders to continue production. Healthy sales also relieved builders of some of the burden of carrying expensive inventory financed by rising construction loan interest rates. How long these positive factors can continue to offset the negative factors is open to question. There is a lot of uncertainty about future market conditions, so proceeding with caution would seem to be the minimal prudence required. ------------------------------ New in This Issue The Office of Federal Housing Enterprise Oversight's weighted repeat sales House Price Index (HPI) for the U.S. and nine regions is now included in the Historical Data section. The HPI is a quarterly index that measures average changes in housing prices at the regional, State, and national levels based on repeat sales or refinancings of single-family homes whose two or more mortgages (conforming and conventional) have been purchased or securitized by Fannie Mae or Freddie Mac (about 41 percent of all single-family mortgage loans originated or refinanced). Information on 6.9 million repeat transactions is in the national statistical sample. A Little Help From Our Friends, Please This is the 11th issue of U.S. Housing Market Conditions, and we would like to turn the tables and hear from our readers about ways that we might improve this publication. If you have thoughts about possible topics we might discuss, suggestions about data series, changes in table formats, or any other way we may better serve you, our readers, please take a few moments and write us (HUD USER-- USHMC, P.O. Box 6091, Rockville, MD 20849), fax us (301-251-5767), or e-mail us (huduser@aspensys.com). Thank you. ------------------------------ Regional Perspective HUD's field economists report that residential construction continued at strong levels during the first half of this year, and housing market conditions remain healthy throughout most of the major markets. Home construction activity increased in all regions but New York/New Jersey, where single-family building permits for the first half of 1996 were down a slight 2 percent from the first half of 1995. The largest increase in homebuilding has been in the Southwest, where single-family permits increased 26 percent, with big gains in the Dallas-Fort Worth, Houston, and Austin areas. Home sales during the first half of 1996 were especially strong in the Southeast, Midwest, and Rocky Mountain regions. California markets continue to show improvement, with sales up 28 percent overall. Among the strongest local markets, sales increased by 24 percent in Phoenix, by 40 percent in Las Vegas, and by 25 percent in Seattle. Multifamily housing permit activity is up in New York; 8,000 rental units are planned for construction in Manhattan during the next 4 to 5 years. Midwest rental markets are experiencing high occupancy rates and rapid absorption of the increased supply of new units. There are signs that Southwest rental markets are becoming more competitive. Multifamily permit activity has declined in the Dallas-Fort Worth area, and the market reception of the more than 6,200 units under construction in the Austin-San Marcos area bears watching. While Colorado and Utah rental markets are holding up well, rent concessions are in evidence in Denver and may soon follow in Colorado Springs and Salt Lake City. The Phoenix and Las Vegas markets remain strong, ranking first and second in the Nation in multifamily units permitted during the first half of the year. NEW DATA ON THE LOW-INCOME HOUSING TAX CREDIT The Low-Income Housing Tax Credit (LIHTC) dispenses more than the equivalent of $3 billion in annual budget authority to subsidize the construction or rehabilitation of housing for low-income families. Support is given to private investors in the form of tax credits that are cashed in over a 10-year period. In exchange, rents for these units must be maintained at affordable levels. The program can be combined with numerous other Federal, State, and local housing subsidies as well as private funds to expand the supply of affordable rental housing. Because of the considerable resources provided, the LIHTC is one of the Federal Government's most important housing programs for low-income families. Under the supervision of the U.S. Internal Revenue Service, 54 State and local housing finance agencies administer the LIHTC program. These agencies independently allocate tax credits within their jurisdictions and perform various monitoring activities. A decentralized administration makes the LIHTC program responsive to State and local housing needs but also means that little aggregate information is collected about the LIHTC. Because no Federal or State agency has collected comprehensive information on the LIHTC, there are no complete and reliable sources of data available to those individuals wishing to study it. Consequently, many unanswered questions about the LIHTC exist, such as: o Who resides in tax-credit projects? o What are their incomes? o What are their ages? o What is the racial makeup of LIHTC project tenants? o How big are LIHTC projects? o Where are they located? One of the barriers to analyzing LIHTC data has been the lack of a sampling frame or list of all projects receiving tax credits. Not knowing the total number and basic characteristics of the LIHTC projects in existence precluded designing and drawing a random sample from which to draw statistically valid inferences. To remedy this situation, the U.S. Department of Housing and Urban Development (HUD) contracted with Abt Associates Inc.1 to collect data on tax-credit projects ready for occupancy (placed in service) between 1990 and 1994. The data were collected by surveying the 54 State and local housing finance agencies. The LIHTC data collection endeavored to create a national sampling frame of tax-credit projects that can be used to answer a wide range of questions of interest to national, State, and local policymakers, investors, housing advocates, and researchers. This article describes the database and discusses some preliminary analysis done by Abt Associates Inc. and HUD. The Database The database contains basic information on 9,785 projects with 339,190 units. The information includes the following: o Project name and address. o Name and address of the owner or owner's representative. o Total number of units. o Number of low-income units. o Total number of units by size. o Year the project was placed in service. o Year the project received a tax-credit allocation or had tax-exempt bonds issued. o Type of structure (new construction, rehabilitation, or existing building). o Credit percentage used (9 percent or 4 percent). o Nonprofit sponsorship. o Increase in basis due to location in Qualified Census Tract or Difficult Development Area. o Use of tax-exempt bonds. o Use of Rural Housing Service (formerly Farmers Home Administration) Section 515 loans earmarked exclusively for rural housing. The most complete coverage of LIHTC units and projects placed in service is for the period 1992-94.2 For 1992 all 54 State housing agencies submitted the requested data. For 1993 and 1994, all agencies except the Chicago agency reported information. For 1990 and 1991, 46 and 47 agencies, respectively, contributed data. For 1987, 1988, and 1989, the number responding declined to 31, 32, and 34 agencies, respectively. Each project in the database was geocoded using its address to assign latitude and longitude coordinates and census tract identifiers. Overall, 76 percent of the properties and 78 percent of the units were successfully geocoded. Data displays the location of LIHTC projects in the 48 contiguous States for the years 1987 through 1994. Using geographic information system software, market analysts can use the geocoded location information to provide a snapshot view of the distribution of LIHTC projects in their areas. Geocoding of projects also permitted the inclusion of census tract information in the database, such as population, population density, racial make-up, median income, Qualified Census Tract/Difficult Development Area status, and fair-market rent. Basic Facts From 1990 through 1994, an average of nearly 49,500 total units per year were placed in service in connection with the LIHTC program. Of these an average of 44,900 units each year were rent restricted for low-income households. In total the LIHTC added more than 247,000 total units to the rental housing stock, of which 224,446 were low-income units. Data demonstrates the importance of the LIHTC program by reporting LIHTC units placed in service by their year of completion, the number of rental apartments completed each year as reported by the Survey of Market Absorption, and LIHTC units as a proportion of all new rental units. From 1990 through 1994, more than 36 percent of all rental apartment units completed have been in LIHTC projects. Total completions fell from 1990 through 1993 but rose slightly in 1994, while the number of LIHTC units increased during this period. LIHTC-supported low-income units made up 54 percent of total units completed in 1994. Data summarizes some of the most interesting findings contained in the database. An average of 1,228 projects were placed in service annually during the period 1990 to 1994. The vast majority of LIHTC projects were relatively small. More than two-thirds of LIHTC projects placed in service during this time contained 50 units or fewer, and more than 20 percent had fewer than 10 units. The average LIHTC project placed in service during this period contained 40.6 units. 86 percent of LIHTC units placed in service between 1990 and 1994 contained 2 bedrooms or fewer. The American Housing Survey reports that 62.4 percent of the total rental units built in the years 1990-93 contained 2 bedrooms or fewer, and 28 percent were 3-bedroom units. Thus, the typical LIHTC unit is smaller than its counterpart in the broader rental housing market. As noted above, data shows the geographic distribution of LIHTC projects. Within the 4 census regions, 43.3 percent of LIHTC units are located in the South, 27.0 percent in the Midwest, 12.5 percent in the Northeast, and 17.2 percent in the West. More LIHTC units are located inside metropolitan central cities than outside. About 53.6 percent of LIHTC units are in central cities, 26.6 percent are in suburbs, and 19.8 percent are in nonmetropolitan areas. The sizable rural component of the tax-credit program is probably linked to the 26.8 percent of LIHTC units financed through Rural Housing Service Section 515. Therefore, it is fair to characterize the LIHTC as a significant source of affordable housing in both rural and urban America. To qualify for tax credits, projects must set aside a specific proportion of units for lower-income households. Owners may elect to set aside at least 20 percent of the project's units for households at or below 50 percent of the area's median income or at least 40 percent of the project's units for households with incomes less than 60 percent of the area's median income. Rents in set-aside units are limited to no more than 30 percent of the elected 50- or 60-percent income limit. Thus, owners of LIHTC projects have some discretion over the number of low-income tenants. Between 1990 and 1994, nearly 91 percent of units in LIHTC-supported projects were set aside for low-income families. LIHTC projects placed in service during that period were composed almost entirely of rent-restricted units reserved for low-income use. In fact, only about 5 percent of units are in projects where LIHTC units compose 40 percent or fewer of the total units. Almost 90 percent of LIHTC projects have at least 80 percent of their units receiving LIHTC assistance. When potential maximum rents for LIHTC projects are compared with HUD's local area Section 8 Fair Market Rents (FMRs) based on the rent of the 45th-percentile market-rate unit, 76.5 percent of LIHTC units would have a higher maximum rent than the local FMR under the 60 percent of median-income standard. Under the 50 percent of median-income standard, 40.9 percent of units would have maximum rents higher than the FMR. In establishing the tax-credit program, Congress required that 10 percent of each State's LIHTC dollar allocation be set aside for projects with nonprofit sponsors. The percentage of units with nonprofit sponsors rose from 18 percent in 1992 to 24 percent in 1993 to 27 percent in 1994, for an average of 23 percent across the 3 years. Nonprofit organizations are increasingly using the tax credit in their efforts to help supply affordable housing. Database To Support More Research Although the database contains useful information on some important issues related to LIHTC, more research will be needed to answer many other important questions. The major purpose of the LIHTC data collection is to provide a sampling frame that will enable additional research on LIHTC by both HUD and outside researchers. HUD has made the LIHTC database and the accompanying report available to the general public on the Internet at http://www.huduser.org/lihtc, and HUD will periodically update the database. LIHTC data collection and locational analysis are part of a broader effort that is under way at HUD to gather and make available data on all major housing and urban economic development programs. In cooperation with the research community, HUD seeks to better understand these programs to improve program efficiency and effectiveness. ------------------------------ Notes: 1 Abt Associates Inc. prepared a report, Development and Analysis of the National Low-Income Housing Tax Credit, summarizing the database and many preliminary findings. This information is available to the public on the Internet: http://www.huduser.org/lihtc 2 The General Accounting Office (GAO) is conducting a similar study of the LIHTC focusing on the 1992 to 1994 period. There are slight differences between HUD's database and GAO's for this period. Because of different definitions and different reporting by the States, GAO's database includes projects that HUD's database does not, and HUD's database contains projects that GAO's does not. Specifically, States provided information to GAO on about 8 percent more projects than the States identified to HUD; conversely, about 5 percent of the projects contained in the HUD database do not appear in GAO listings. These differences can only be resolved with additional State cooperation. ------------------------------ U.S. Housing Market Conditions is published quarterly by the U.S. Department of Housing and Urban Development, Office of Policy Development and Research. Henry G. Cisneros Secretary Michael A. Stegman Assistant Secretary, Office of Policy Development and Research Frederick J. Eggers Deputy Assistant Secretary, Economic Affairs Paul A. Leonard Deputy Assistant Secretary, Policy Development Duane T. McGough Director, Housing and Demographic Analysis Division David E. Shenk Director, Economic Market Analysis Division Katherine L. O'Leary Director, Research Utilization Division Ronald J. Sepanik Deputy Director, Housing and Demographic Analysis Division Bruce D. Atkinson Economist Sue George Neal Economist Randall M. Scheessele Economist Edward J. Szymanoski Economist Vanessa Void-Taylor Research Utilization Specialist Robert R. Callis Bureau of the Census HUD Field Office Economists who contributed to this issue are: New England: John R. Reilly Boston New Haven-Meriden, CT: Michael W. Lackett Boston New York/New Jersey: David S. Burns New York Jersey City, NJ: Paul M. Bannett New York Mid-Atlantic: Frances A. Kenney Richmond Newport News-Norfolk-Virginia Beach, VA: Frances A. Kenney Richmond Southeast: Bette L. Almand Atlanta Tampa-St. Petersburg-Clearwater, FL: J. David Kay Jacksonville Midwest: Joseph P. McDonnell Chicago Cincinnatti, OH-KY-IN: Sondra Scott King Columbus Southwest: Linda L. Hanratty Ft. Worth Austin-San Marcos, TX: Linda L. Hanratty Ft. Worth Great Plains: Donald J. Gebauer Kansas City St. Louis, MO-IL: Edward M. Sheehan St. Louis Rocky Mountain: James A. Coil Denver Pueblo, CO: James A. Coil Denver Pacific: Robert E. Jolda San Francisco San Francisco, CA: Pamela J. Leong San Francisco Northwest: Pamela R. Sharpe Seattle Seattle-Bellevue-Everett, WA: Pamela R. Sharpe Seattle ------------------------------ NATIONAL DATA HOUSING PRODUCTION Permits* Permits for construction of new housing units rose 3 percent in the second quarter of 1996 to a seasonally adjusted annual rate of 1,442,000 units and were 14 percent above the second quarter of 1995. One-unit permits, at 1,099,000 units, were 2 percent above the level of the previous quarter and up 17 percent from a year earlier. Multifamily permits (5 or more units in structure), at 276,000 units, were 5 percent above the first quarter and 6 percent above the same quarter last year. Starts* Construction starts of new housing units in the second quarter of 1996 totalled 1,484,000 units at a seasonally adjusted annual rate, a statistically insignificant 1 percent above the first quarter of 1996 and 15 percent higher than the second quarter last year. Single-family starts, at 1,192,000 units, were a statistically insignificant 2 percent higher than the previous quarter and 17 percent above the previous year's rate. Multifamily starts totalled 245,000 units, 12 percent below the previous quarter but a statistically insignificant 1 percent above the same quarter last year. Under Construction* Housing units under construction at the end of the second quarter of 1996 were at a seasonally adjusted annual rate of 842,000 units, 3 percent higher than the previous quarter but 12 percent above the second quarter of 1995. Single-family units under construction at the end of the second quarter of 1996 stood at 604,000 units, 4 percent above the previous quarter and 13 percent above the second quarter of 1995. Multifamily units were at 210,000 units, down a statistically insignificant 2 percent from the previous quarter but 5 percent above the second quarter last year. Completions* Housing units completed in the second quarter of 1996, at a seasonally adjusted annual rate of 1,380,000 units, were nearly equal to the previous quarter but a statistically insignificant 6 percent above the same quarter last year. Single-family completions, at 1,094,000 units, were also nearly equal to the previous quarter but a statistically insignificant 3 percent above the year-earlier rate. Multifamily completions, at 260,000 units, were a statistically insignificant 3 percent above the previous quarter and 27 percent above the same quarter last year. Manufactured (Mobile) Home Shipments* Shipments of new manufactured (mobile) homes to dealers were at a seasonally adjusted annual rate of 352,000 units in the first quarter of 1996, nearly equal to the previous quarter, but 6 percent above the rate a year earlier. ------------------------------ HOUSING MARKETING Home Sales* Sales of new single-family homes totalled 758,000 units at a seasonally adjusted annual rate (SAAR) in the second quarter of 1996, a statistically insignificant 2 percent above the previous quarter but 14 percent above the second quarter of 1995. The number of new homes for sale at the end of June 1996 numbered 359,000 units, up a statistically insignificant 1 percent from the last quarter and up a statistically insignificant 3 percent from the second quarter of 1995. At the end of June, inventories represented a 5.9 months' supply at the current sales rates, a statistically insignificant 6 percent above the previous quarter and the same as the second quarter of 1995. Sales of existing single-family homes reported by the NATIONAL ASSOCIATION OF REALTORS for the second quarter of 1996 totalled 4,220,000 (SAAR), up 7 percent from the second quarter's level and 16 percent above the second quarter of 1995. The number of units for sale at the end of the second quarter was 2,160,000, 5 percent below the previous quarter but 20 percent above the second quarter of 1995. At the end of the second quarter, there was a 6.2 months' supply of units, 5 percent below the previous quarter but 9 percent above the second quarter of 1995. Home Prices The median price of new homes during the second quarter of 1996 was $139,800, a statistically insignificant 2 percent above the previous quarter but 4 percent above the second quarter of 1995. The average price of new homes sold during the second quarter of 1996 was $165,700, up 3 percent from the first quarter of 1996 and up 4 percent from the same quarter a year ago. (Both changes are statistically insignificant.) The price adjusted to represent a constant-quality house was $164,400, nearly the same as in the first quarter of 1996 and up a statistically insignificant 2 percent from the second quarter of 1995. The values for the set of physical characteristics used for the constant-quality house are based on 1992. The median price of existing single-family homes in the second quarter of 1996 was $118,900, 4 percent above last quarter and 7 percent above the second quarter of 1995, according to the NATIONAL ASSOCIATION OF REALTORS. The average price of $145,400 was 4 percent above the previous quarter and 6 percent above the second quarter of 1995. Housing Affordability Housing affordability is the ratio of median family income to the income needed to purchase the median-priced home based on current interest rates and underwriting standards, expressed as an index. The NATIONAL ASSOCIATION OF REALTORS composite index value for the second quarter of 1996 showed that the family earning the median income had 121.7 percent of the income needed to purchase the median-priced existing home. This figure is 7 percent below the first quarter of 1996 and 3 percent below the second quarter of 1995. This decrease is the result of a 4-percent rise in the median home price, a 50-basis-point interest-rate rise, failing to be offset by a 0.9-percent growth in median family income during the last quarter. The fixed-rate index fell by 9 percent from the first quarter of 1996 and by 2 percent from the second quarter of 1995. The adjustable-rate index fell by 4 percent from the previous quarter and by 3 percent from the year-earlier quarter. Apartment Absorptions There were 43,800 new, unsubsidized, unfurnished, multifamily (5 or more units in structure) rental apartments completed in the first quarter of 1996, down a statistically insignificant 4 percent from the previous quarter but up 72 percent from the first quarter of 1995. Of the apartments completed in the first quarter of 1996, 77 percent were rented within 3 months. This absorption rate is unchanged from the previous quarter and 17 percent above the same quarter the previous year. The median asking rent for apartments completed in the first quarter was $614, 9 percent below the previous quarter but a statistically insignificant 3 percent higher than a year earlier. Manufactured (Mobile) Home Placements Homes placed on site ready for occupancy in the first quarter of 1996 totalled 333,000 at a seasonally adjusted annual rate, 10 percent above the level of the previous quarter and a statistically insignificant 1 percent above the first quarter of 1995. The number of homes for sale on dealers' lots at the end of the first quarter totalled 90,000 units, 2 percent below the previous quarter, but 23 percent above the same quarter the previous year. The average sales price of the units sold in the first quarter was $37,000, down 4 percent from the previous quarter but 6 percent higher than the previous year's price. Builders' Views of Housing Market Activity The National Association of Home Builders (NAHB) conducts a monthly survey focusing on builders' views of the level of sales activity and their expectations for the near future. NAHB uses these survey responses to construct indices of housing market activity. (The index values range from 0 to 100.) The second-quarter value for the index of current market activity for single-family detached houses stood at 65, up 8 points from the first-quarter level of 57 and up 21 points from last year's second quarter. The index for future sales expectations, 68, was up 6 points from the first-quarter value and up 16 points from last year's level. Prospective buyer traffic had an index value of 52, 10 points above the first-quarter value and 22 points above last year's level. NAHB combines these separate indices into a single housing market index that mirrors the three components quite closely. In the second quarter, this index stood at 61, 7 points above the first-quarter level, but up 19 points from last year. ------------------------------ HOUSING FINANCE Mortgage Interest Rates Mortgage interest rates for all categories of loans rose from the previous quarter. The contract mortgage interest rate for 30-year, fixed-rate, conventional mortgages reported by Freddie Mac was 8.11 percent in the second quarter, 83 basis points higher than the previous quarter and 16 basis points higher than the same quarter last year. Adjustable-rate mortgages in the second quarter were going for 5.81 percent, 38 basis points above the previous quarter, but 31 basis points below the same quarter last year. Fixed-rate, 15-year mortgages, at 7.62 percent, were up 84 basis points from last quarter and 14 basis points from the same quarter last year. The FHA rate rose 100 basis points during the quarter, but was unchanged from the same quarter last year. FHA 1-4 Family Mortgage Insurance* Applications for FHA mortgage insurance on 1-4 family homes were received for 280,500 (not seasonally adjusted) properties in the second quarter of 1996, down 10 percent from the previous quarter but up 23 percent from the second quarter of 1995. Endorsements or insurance policies issued totalled 213,600, up 4 percent from the first quarter of 1996 and up 68 percent from the second quarter of 1995. Endorsements for refinancing were 48,100, up 19 percent from the first quarter of 1996 and up 525 percent from a year earlier. PMI and VA Activity* Private mortgage insurers issued 298,300 policies or certificates of insurance on conventional mortgage loans during the second quarter of 1996, up 23 percent from the first quarter and up 34 percent from the second quarter of 1995; these numbers are not seasonally adjusted. The U.S. Department of Veterans Affairs reported the issuance of mortgage loan guaranties for 92,000 single-family properties in the second quarter of 1996, up 5 percent from the previous quarter and up 77 percent from the second quarter of 1995. Mortgage Originations by Loan Type, 1-4 Family Units The total value of mortgage originations for 1-4 family homes was $205.0 billion in the first quarter of 1996, up 8 percent from the fourth quarter of 1995. Three of the four loan types decreased in volume during the quarter: VA-guarantied mortgages fell 30 percent, privately insured mortgages decreased 7 percent, and FHA-insured mortgages declined 23 percent. Uninsured mortgage volume grew 22 percent. The overall increase from the first quarter of 1995 was 72 percent. FHA and VA mortgages increased 71 percent and 41 percent, respectively. Uninsured mortgages increased 82 percent, while privately insured mortgages rose 41 percent. Market shares changed very little during the first quarter of 1996, although changes were more pronounced than changes from the previous year. Residential Mortgage Originations by Building Type* Residential mortgage originations totalled $217.3 billion in the first quarter of 1996, up 8 percent from the fourth quarter of 1995 and up 69 percent from the first quarter of 1995, and nearly identical to the single-family mortgage pattern reported above. The financing volume for multifamily (5+) units totalled $12.3 billion in the first quarter, up 7 percent from the previous quarter and up 32 percent from the first quarter of 1995. Mortgage Originations by Lender Type, 1-4 Family Units Mortgage companies increased their volumes during the first quarter of 1996 to $121 billion, a 12-percent increase from the fourth quarter of 1995 and an 86-percent gain from the first quarter of 1995. Their market share rose only slightly, although they continue to dominate the market with a 59-percent share. Most other lenders experienced increased volumes, especially over a year earlier: mortgage loans made by commercial banks rose 2 percent from the fourth quarter, although their volume was up 56 percent from the first quarter of 1995. Overall, their share fell slightly to 22.8 percent of the market. Mutual savings banks, with a market share of 3.7 percent, wrote $7.5 billion in loans, a 1-percent increase from the previous quarter and 97 percent over the previous year. Mortgages written by savings and loan institutions, which made $28.4 billion in loans, rose 5 percent for the quarter and 52 percent for the year although their market share dropped slightly. Delinquencies and Foreclosures Total delinquencies were at 4.46 percent at the end of the first quarter of 1996, nearly identical to the fourth quarter but up 14 percent from the first quarter of 1995. Ninety-day delinquencies were at 0.70 percent, down 1 percent from the first and fourth quarters of 1995. During the first quarter of 1996, 0.38 percent of loans entered foreclosure, up 15 percent from the previous quarter and up 19 percent from the first quarter of 1995. ------------------------------ HOUSING INVESTMENT Residential Fixed Investment and Gross Domestic Product* Residential Fixed Investment (RFI) for the second quarter of 1996 was $313.6 billion, up 4 percent from the first quarter of 1996 and up 11 percent from the second quarter of 1995. As a percent of the Gross Domestic Product, RFI was 4.2 percent, up 2 percent from the previous quarter and up 6 percent from a year ago. ------------------------------ HOUSING INVENTORY Housing Stock* The estimate of the total housing stock as of the second quarter of 1996, 114,207,000 units, was 0.8 percent above the first quarter of 1996 and 1.3 percent above last year. The number of occupied units followed a similar pattern. Owner-occupied homes showed a 1.1-percent increase over the first quarter of 1996 and a 2.3-percent increase from the second quarter of 1995. Rentals declined a statistically insignificant 0.2 percent from last quarter and declined 0.9 percent from last year. Vacant units rose 2.4 percent from last quarter and 2.5 percent from the previous year. Vacancy Rates The national rental vacancy rate in the second quarter of 1996, at 7.8 percent, was down 0.1 percentage points from last quarter but up 0.1 percentage points from last year. The homeowner vacancy rate, at 1.5 percent, was down 0.1 percentage points from both last quarter and last year. Homeownership Rates The national homeownership rate was 65.4 percent in the second quarter of 1996, up 0.3 percentage points from the first quarter and up 0.7 percentage points from the second quarter of 1995. The second-quarter rate is a 15-year high. The homeownership rate for minority households increased 0.6 percentage points from the first quarter and 1.4 percentage points from last year. The rate for young households, at 58.8 percent, was up 1.1 percentage points from last quarter and 1.9 percentage points from last year. ------------------------------ REGIONAL ACTIVITY The following summaries of housing market conditions and activities have been prepared by economists in the U.S. Department of Housing and Urban Development's (HUD's) field offices. The reports provide overviews of economic and housing market trends. Each regional report also includes a profile of a selected housing market that provides a perspective of current economic conditions and their impact on the local housing market. The reports are based on information obtained by HUD economists from State and local governments, housing industry sources, and from their ongoing investigations of housing market conditions carried out in connection with the review of HUD program applications. ------------------------------ NEW ENGLAND Employment in New England showed solid improvement during the second quarter of 1996, with nonagricultural wage and salary employment reaching 6.4 million in May. Job growth over the 12-month period through May 1996 ranged from 2 percent in both Massachusetts and New Hampshire to 1 percent in Connecticut, Rhode Island, and Vermont. Rhode Island showed substantial gains in health services and retail trade. Connecticut's employment increased by 13,200 jobs, with gains in the services sector offsetting declines in manufacturing. Massachusetts had a net gain of 52,000 new jobs, mostly in the services sector where 34,000 jobs were created. New England sources are projecting a 1.4-percent growth rate for employment during 1997. The manufacturing sector is expected to show a small increase for the first time in a number of years. As of May 1996, the unemployment rates in all New England States were below the national average. New Hampshire's unemployment rate was the lowest in New England, at 3.7 percent. Vermont had the second lowest rate of 3.8 percent. The Boston area continues to have a tight labor market, with current unemployment at 3.9 percent. Shortages of skilled workers are being reported by Boston area manufacturers. Residential building permit activity was up 1 percent for the first 6 months of 1996 com-pared with the same period a year ago. Permits were issued for 18,226 units in the first half of 1996. All States but Massachusetts and New Hampshire showed modest increases in activity. In Massachusetts 7,576 single-family units were permitted in the first 6 months of 1996, a decline of 2 percent. In Connecticut single-family activity (3,830 units) was up 13 percent from 1 year ago. Multifamily activity (1,890 units) in the region was down 29 percent compared with the same period last year. The annual volume of existing home sales in Massachusetts was up a healthy 13.8 percent to 73,300 units as of the first quarter of 1996. The median sales price in the Boston metropolitan area during the period was up about 7 percent compared with the first quarter of 1995. However, prices in the other major markets of the region either remained flat or showed only slight gains. Rental markets in New England remain in stable condition in most areas. Boston has a tight rental market due to the increased demand from an improving economy and pressure from growing student enrollments at local universities. Rental vacancy rates in the city of Boston and close-in suburbs are in the 2- to 4-percent range. The weak rental market in the Providence, Rhode Island, area continues to show improvement, with the rental vacancy rate declining to about 6 percent. Rental vacancy rates continue to drop in Maine, New Hampshire, and Vermont housing markets. Apartment developers have begun to show interest in the Manchester, New Hampshire, and Portland, Maine, areas. Spotlight on New Haven-Meriden, Connecticut After several years of employment losses, the economy of the New Haven-Meriden metropolitan area appears to have stabilized. While growth is slow, the real estate market is relatively stable and there are moderate levels of new construction activity. The housing and commercial markets of the central city still have problems due to abandonment and out-migration, but public and business officials are exploring ways and committing resources to reverse these trends. The New Haven area's economy has steadily but slowly improved since 1992, after losing more than 23,000 jobs annually between 1989 and 1991. Since 1992 employment has increased by about 1,350 annually through May 1996. Residential building activity has been holding steady since 1990, averaging 1,275 units annually. This figure contrasts with the peak level of residential construction of more than 4,600 units in 1986. During the first 6 months of 1996, 520 units were permitted, compared with 480 units in the first half of 1995. Since 1990 single-family building permits have accounted for 76 percent of the new construction in the New Haven area. This trend will continue due to the remaining excess supply of condominiums, many currently in the rental market, that have been slow to sell. Home sales in the metropolitan area have steadily improved since 1990. In New Haven County, which makes up most of the metropolitan area, sales reached a high of 12,200 homes in 1994, and 1995's sales volume was only slightly below that peak level. During the first 5 months of 1996, sales were up by almost 10 percent from the comparable period in 1995. The median sales price, however, has declined each year since 1989 to $118,500 in 1995. The rental market in the New Haven area has improved over the past 2 years. The improvement, however, has been restricted to the middle and upper end of the market. ------------------------------ NEW YORK/NEW JERSEY Between May 1995 and May 1996, nonagricultural wage and salary employment in New York State increased by 80,500 jobs, or 1 percent. Most of the job growth occurred in retail trade and services, particularly business and health services. Employment gains were partially offset by declines in nondurable goods manufacturing and government. New York State's unemployment rate in May 1996 was 6.1 percent, down slightly from 6.2 percent in May 1995. New York City's unemployment rate was 8.4 percent in May 1996, up from 8.0 percent a year ago. In New Jersey seasonally adjusted nonagricultural employment as of May 1996 was up 1.1 percent from a year earlier. Employment in service industries rose by 9,200 jobs, while manufacturing employment remained essentially unchanged. The seasonally adjusted unemployment rate dropped to 6.1 percent as of May 1996, the lowest level since December 1990. In New York State, single-family building permits in the first 6 months of 1996 (9,607 units) were down a slight 3 percent from the comparable 1995 period. However, multifamily activity in the first 6 months of 1996 (7,207 units) showed a 214-percent increase. The Albany, Buffalo, Newburgh, Syracuse, and New York City metropolitan areas all reported substantial increases in multifamily activity. New Jersey multifamily permit activity, in contrast, was down 20 percent and single-family activity was unchanged. Home sales for the first quarter of 1996 dropped 8 percent from the first quarter of 1995, according to the New York State Association of Realtors. The median sales price of $119,500 in the first quarter of 1996 represented a 3-percent gain over the same period last year. New Jersey home sales in the first quarter of 1996 were 3.5 percent higher than the same period a year ago, and the median sales price ($150,100) was up 3 percent from the first quarter of 1995. The Manhattan rental market has become very tight. Rents increased as much as 12 percent in some units in 1995, with greater increases on the East Side than the West Side. The smallest increases were for two- and three-bedroom apartments, which are attributable to the competition from larger size condominiums and cooperatives. Manhattan's tight rental market and escalating rents have stimulated developer interest; local sources estimate that some 8,000 rental units are planned for construction during the next 4 to 5 years. About one-third of the units are located in old office buildings in the Wall Street area, which are planned for rehabilitation. The emphasis on rental housing construction in Manhattan is a recent occurrence. In the 1980s most construction was in the condominium and cooperative market, and the supply of rental housing was being further diminished by condominium and cooperative conversions. Little residential construction was completed in the first half of the 1990s due to the poor economic conditions from 1989 through 1992. Manhattan's increasing rents and sales prices have started to affect rents in the more affluent neighborhoods in other boroughs of New York City, such as Brooklyn Heights, Forest Hills, and Riverdale. The tight market has been the impetus for one project in Queens to be insured by FHA. The development, known as Queens West, recently received an $85.6 million mortgage for the first phase, a 42-story, 522-unit, middle-income housing project. The development will be situated on the East River directly across from the United Nations, a 5-minute subway ride from Grand Central Station. It is planned ultimately to comprise 19 buildings consisting of moderate-income housing, office space, a 250-room hotel, commercial and retail space, and a 20-acre park. Elsewhere in New York City, a group of 50 corporation and business executives have raised $50 million to launch the New York City Investment Fund. The fund seeks to promote economic development and create jobs by offering loans to promising new and established retailers in poorer neighborhoods where commercial loans have been difficult to obtain. It is hoped that the fund will expand various businesses by leveraging small investments into large ones, creating a resurgence of confidence in commercial efforts in these neighborhoods. Spotlight on Jersey City, New Jersey The Jersey City Primary Metropolitan Statistical Area (PMSA) (Hudson County) on the west bank of the Hudson River opposite Manhattan began to rebound in the mid-1980s after a long decline. Following years of population loss, during the 1980s the number of residents in Jersey City actually increased by 2.2 percent to 228,500 as of 1990. Between 1980 and 1990, employment increased by 8 percent in the metropolitan area and by 10 percent in Jersey City. After a lull from 1989 to 1992, this positive trend has continued and should persist through 1996. The improvement has been due to a number of major real estate developments on underutilized land, State and Federal Government assistance, and strong local leadership. A major strength of Jersey City's real estate development is its proximity to New York City's financial district. Areas of Jersey City and adjacent Hoboken served by PATH (Port Authority Transit Hudson), a major commuter link from Hudson County to downtown and midtown Manhattan, have experienced large-scale residential revitalization. At the same time, the area's economic mix has shifted significantly. While manufacturing declined 43 percent in the 1980s, the service sector has now become the largest employer. The finance, insurance, and real estate sector has benefitted from the addition of such large firms as Merrill Lynch and First Chicago, which have established large back-office operations in Jersey City. Major redevelopment projects in the Jersey City area over the past 10 years include: o Newport, a 400-acre mixed-use development completed in 1987, consisting of a regional shopping mall, office towers, a marina, and more than 2,000 units of multifamily housing. Construction has recently started on an additional 346-unit apartment building to be insured by FHA. o Exchange Place, a class A office center with 6.5 million square feet that is almost 93-percent occupied. o Liberty Industrial Park, formerly a vacant industrial building, converted by The New York Daily News into a 400,000-square-foot printing plant for 1,000 employees. o Avalon Cove, a 504-unit rental housing complex that is nearing completion of its first phase. In addition, a $20 million renovation of the Hoboken Railway Terminal is under way. Plans were recently announced for a $700 million residential and retail development on the Hudson River in West New York. The project will consist of 4,000 units of highrise apartments and condominiums with some retail space. Construction could begin in early 1997 and will take several years to complete. In North Bergen a 2-building, 400-unit highrise development that will include both rental units and condominiums is under construction. New market-rate housing construction in the Jersey City area has been stimulated by its lower rents (about 33 percent less than comparable new Manhattan apartments) and easier land assemblage than in New York City. Overall, the Jersey City rental market is balanced. While newer developments built during the past 10 years have a rental vacancy of under 2 percent, the rental vacancy rate for older units in less desirable locations is about 6 to 8 percent. ------------------------------ MID-ATLANTIC Overall employment increases in 1996 in the Mid-Atlantic region have been nominal. The four major metropolitan areas (Philadelphia, Pittsburgh, Baltimore, and Washington, D.C.), which comprise more than half of the region's jobs, have had sluggish economies. In the Pittsburgh area, 1-percent employment growth continues for the third consecutive year, with three of every four jobs added in wholesale and retail trade. In the Washington, D.C., area, the 2-percent job gain this year in Northern Virginia is twice that of the growth rate in the Maryland suburbs, fueled by continued rapid expansion in computer-related business services. Baltimore's employment has held steady during the first 5 months of this year, while the Philadelphia area has had a slight net loss. The May unemployment rate is down somewhat in all four metropolitan areas, ranging from 3.8 percent in the Washington, D.C., area to 5.8 percent in Philadelphia. Some increase in economic activity is expected in the second half of the year, based on an anticipated strong tourist season and commencement of construction projects. Two major hotels with 950 rooms are under construction in downtown Philadelphia. A new Lazarus department store will be built in downtown Pittsburgh. National retailers are targeting the Mid-Atlantic, creating thousands of wholesale and retail trade jobs. The Interstate 81 corridor in both Virginia and Maryland has attracted warehouse/distribution centers to serve the entire region, including Target stores, Staples office products, and GBC Film products. The interchange of Interstates 81 and 70 outside Hagerstown is also attracting credit card/telemarketing jobs, helping to offset job losses in the area due to electric power consolidations by Allegheny Power throughout their five-State service area. In the Pittsburgh area, Sony has started hiring 400 employees for the American Video Glass Company plant and the PNC Bank is hiring 400 workers for its telebanking operation. In Virginia a second semiconductor plant for the Richmond area was announced in May by Siemens/Motorola that will employ 1,000 in the production of memory chips. Rebounding sales in housing markets throughout the region should also contribute to the improvement in the local economies. In Pittsburgh existing home sales through the first 5 months were up 14 percent from a year ago. A major project is planned for the city on Herrs Island, which will include 1,200 units. A combination of single-family, duplex, and townhouse units priced from $150,000 to $300,000 and luxury rentals could be started late next year. In the Baltimore area, existing home sales were up 19 percent in the first half of 1996. In the Washington, D.C., area, May 1996 sales were up 9 percent over May 1995, with similar gains registered on both the Virginia and Maryland sides. Due to expansion at the Patuxent River Naval Air Warfare Center in St. Mary's County, housing demand in southern Maryland has continued to increase. In Charles County major area builders are particularly active in the Waldorf/La Plata corridor. Builders are typically offering single-family homes in the $150,000 to $175,000 range. One of the largest developments, Kingsview, is a 900-acre site that will include 500 single-family homes and 140 townhouses with a variety of home styles and prices. Prices start at $125,000 for townhouses and go up to $300,000 or more for custom, single-family detached units. In St. Mary's County, 1- to 4-acre lots are typical, and prices for new homes start at $128,000, among the lowest in the 3-county area. Single-family construction is up this year in the Pittsburgh suburbs of Washington, Butler, and Westmoreland Counties, attracting buyers looking for close-in yet rural locations. In the Baltimore area, single-family residential construction is up 4 percent this year. Virginia's 11-percent increase in single-family activity is due largely to the improving Northern Virginia market. Construction is up 20 percent in the area comprising Fairfax, Loudoun, Prince William, Stafford, and Spotsylvania Counties, with 5,000 single-family units authorized through May. Rental markets continue to improve in the absence of significant multifamily construction. Most multifamily activity throughout the region is being developed for a particular market segment, such as tax-credit projects for moderate-income renters or housing for the elderly. In downtown Philadelphia rental vacancies are now about 2 percent, spurring the conversion of older office buildings to apartments. Using FHA insurance, one project is converting offices to efficiency and one-bedroom units in a 12-story building. Rents will be $600 for an efficiency and $800 for a one-bedroom unit. Many of the new apartment developments coming on the market in the Washington, D.C., area are aimed at the upper income renter. Upscale rentals in the Washington metropolitan area are priced at about $800 for a one-bedroom unit and $1,100 for a two-bedroom unit. Convenience to the subway system is important in addition to a full range of amenities and onsite services. Moderate-income rentals are being added in the area using the Low-Income Housing Tax Credit (LIHTC) program. Spotlight on Norfolk-Virginia Beach-Newport News (Hampton Roads), Virginia The annual rate of growth in the Hampton Roads economy slowed in 1996 to 1 percent, about half the rate of the annual employment gain in the last 2 years. Shipbuilding layoffs and civilian job losses at local military bases offset healthy gains in the construction and real estate sectors this year. Unemployment in the area was 4.7 percent as of May 1996, slightly above the State's rate of 4.2 percent. A strong summer tourist season, job expansion in computer assembly and telecommunications, and the rebounding housing market will likely mean an increase in the rate of growth in the second half of 1996. Faster growth over the next 3 years is also likely. Two new regional shopping malls with nearly 2 million square feet of retail space have been announced and expansions are under way at four existing regional retail centers. Out-of-State retailers are establishing a presence in Hampton Roads. In addition, Oceana Naval Air Station in Virginia Beach is scheduled to add 5,000 personnel by 1999 as it becomes the Navy's largest fighter base, home of all F-14 fighters and the East Coast hub of F/A-18s. Most of the buildup will occur in 1998. The expansion is expected to result in an additional 7,100 jobs in the private sector. Until this year, the sales market had been stagnant in the Tidewater submarket (Norfolk, Portsmouth, Chesapeake, Virginia Beach, Suffolk, and Isle of Wight County) due to military uncertainty. However, existing home sales are now up 18 percent over last year in Tidewater and single-family permits have increased by 39 percent as well. Home construction in the Tidewater area has shifted to the western suburbs due to construction of Interstate 664, the Monitor-Merrimac bridge/tunnel, and the Western Freeway, which opened Suffolk, Isle of Wight County, and Chesapeake to major job centers on the Peninsula (Gloucester County, Williamsburg, James City, York County, Hampton, and Newport News) and downtown Norfolk. In Suffolk, where production has doubled in recent years to 800 single-family units a year, construction is characterized by 1,700- to 2,500-square-foot homes on one-third to one-half acre lots. These homes are priced primarily in the $110,000 to $140,000 range. Presently, there are more than 30 active subdivisions in the Suffolk area. The Harbour View, a new planned community in north Suffolk, is planned to include 3,000 homes, a golf course, and a community center with recreational amenities. More than half of the 1,500 lots in Phase I have already been sold to builders. Single-family home production in Isle of Wight County is at peak levels. The largest development is Gatling Pointe South where some 200 homes priced at $200,000 and above are planned for construction. The Deep Creek portion of northern Chesapeake is also accounting for a greater share of growth, with 10 approved sub-divisions and more than 1,250 homes planned for development. Existing home sales are down by 2 percent this year in the Peninsula submarket after a similar drop last year. However, Williamsburg remains strong, showing a 20-percent increase in sales in 1995 and a slight gain this year. The Williamsburg area is less affected by shipyard losses and continues to attract East Coast retirees. The Governor's Land at Two Rivers, located west of Williamsburg, offers a harbor, a marina, golf courses, and 1,444 acres with 722 homes. Lots are priced at $150,000 for golf course frontage to more than $400,000 for waterfront acreage. Homes are priced at $300,000 and above. Townhouse and condominium production has remained steady in Tidewater and on the Peninsula, accounting for about 25 percent of all sales in housing construction. Activity is concentrated in Virginia Beach and Chesapeake in Tidewater and in James City and York County on the Peninsula. Condominium prices start at about $60,000 and townhouses are primarily in the $80,000 to $100,000 range. Major active subdivisions are adding about 10 units per month based on a steady rate of sales. Although rental vacancy rates have declined in the past 6 years to about 7 percent currently, there is still a slight excess of available rental housing, particularly those units renting for less than $500 per month. Since 1991 apartment construction has averaged about 1,200 units annually in the Hampton Roads area. Virtually all apartment construction in recent years has been developed for specialized markets, including tax-credit housing and housing for the elderly and military personnel. ------------------------------ SOUTHEAST/CARIBBEAN Employment growth in the Southeast/Caribbean continues to exceed the national rate of growth. As of May 1996, total employment in the eight States and Puerto Rico had increased by 2.2 percent compared with May 1995 levels. The largest rate of growth was in Georgia, at just more than 4 percent. Job growth in Puerto Rico and Florida was also strong, at more than 3 percent. Kentucky and South Carolina, however, experienced slight declines in employment. The lowest unemployment rate was in North Carolina, at 4.3 percent; the rates in Georgia and Tennessee were also less than 5 percent. Alabama's unemployment rate was 5.6 percent, while Mississippi's rate of 6.3 percent exceeded the national figure. The Southeast's textile industry continues to suffer, with a loss of more than 26,000 jobs over the past year. In South Carolina Springs Industries is closing 3 plants by the end of the year, which will mean a loss of 850 jobs. In Denton and Wake Forest, North Carolina, Burlington Industries, Inc., is closing 2 plants, resulting in a loss of 1,100 jobs. Rocky Mount Mills in North Carolina will eliminate 320 jobs. For the first 6 months of 1996, 155,682 single-family units were permitted for the 8 States in the Southeast, a 16-percent increase over the same period in 1995. The biggest increases were in Alabama and Georgia, which were both up 22 percent. Kentucky and Mississippi had increases of 19 percent. While most metropolitan areas experienced significant increases in single-family permits, production plummeted in the Miami PMSA. Through June only 1,487 units had been permitted compared with 2,589 during the first 6 months of 1995, a decline of 43 percent. The reduced number of units reflects a substantial surge in permit activity in 1995 as builders banked permits in anticipation of substantial increases in impact fees in 1996. Home sales in 1996 in most Southeast major markets continue to be very strong. Birmingham, with 976 home sales in May, had its highest monthly volume in history. According to the Nashville Board of Realtors, sales of single-family homes in that area were up 19 percent from a year ago. The Memphis Area Association of Realtors reported that May 1996 sales were up 26 percent over May 1995. HUD's San Juan office reported that the number of FHA single-family loan cases rose 20 percent compared with the same period in 1995. State agencies throughout the region are actively involved in affordable sales housing efforts. The Tennessee Housing Development Agency (THDA) has a homeownership program for low- to moderate-income families and a Special Targeted Affordable Rate for Tennesseans (START) program. The START program offers a 30-year, fixed-rate mortgage at an interest rate of 5.5 percent to families that earn less than $17,000 a year. THDA has committed to 990 loans in the first 5 months of 1996. In June THDA initiated a $64 million bond sale to help 1,300 first-time homebuyers qualify for low-interest loans. The 30-year, fixed-rate loans will bear an interest rate of 7.5 percent. The Puerto Rico Department of Housing's New Housing Program, in partnership with HUD's FHA Section 203(b) Insurance Program, promotes private-sector development of affordable housing units with a maximum sales price of $60,000 per unit. To address builders' concerns on thin profit margins, the program provides tax exemptions of up to $5,000 per unit sold and speedy processing of building permits. Mortgage rates vary from 3.5 to 5.5 percent, depending on the payment ability of each family. The State Housing Finance and Development Authority of South Carolina is making $25 million available to first-time homebuyers and those who have not owned a home in the past 3 years. The program should provide housing for 500 families. The maximum income is $28,160, plus $1,000 for each additional family member. The maximum home purchase price must be $76,000 or less. In May the Alabama Housing Finance Authority announced it would offer low-interest loans to about 500 limited-income buyers. Multifamily construction activity remains strong in the first 6 months of 1996. The number of multifamily units permitted through the first half of the year (43,160) was down a modest 3.8 percent from strong 1995 levels. North Carolina, South Carolina, and Tennessee all recorded substantial increases in activity of 13, 29, and 49 percent, respectively, compared with the first 6 months of 1995. Among the metropolitan areas, the Miami PMSA experienced the biggest decline in multifamily activity (70 percent), again reflecting builders banking permits in 1995. In the Southeast the LIHTC program has typically been used to fund projects that only serve families whose incomes do not exceed 60 per-cent of the area's median family income. Some North Carolina projects are serving 20 percent of tenants with incomes below 50 percent of the median income if the project has received additional HUD or State subsidies. The North Carolina Housing Finance Agency attempts to distribute funds for tax-credit projects so that 65 percent are located in metropolitan areas and 35 percent are in nonmetropolitan areas. The agency has required that tax-credit rents be set at 10 percent below the maximum level permitted by the income limit, so that they are usually below market and the projects have less difficulty leasing up. The Alabama Housing Finance Agency (AHFA) will have $5.3 million in tax credits to allocate this year. Most of the projects in Alabama target families; however, there are some projects for the elderly and disabled. Typically, AHFA uses approximately 10 percent of its annual allocation to fund projects for elderly citizens. Information available for 305 tax-credit projects with 24,484 units in Florida indicates an occupancy rate of 91 percent, but some projects have only recently been completed. In Georgia a majority of the projects outside metropolitan areas have involved the Rural Housing Service's Section 515 program. Spotlight on Tampa-St. Petersburg-Clearwater, Florida The current population of the Tampa-St. Petersburg-Clearwater metropolitan area is estimated to be 2,275,000, reflecting a moderate increase of about 1.5 percent annually since 1990. Growth has been much larger in the Tampa part of the area. For the 12 months ending in March 1996, the 4-county metropolitan area reported an average of 1 million jobs, an annual growth rate of more than 36,000. The unemployment rate in March 1996 was a very low 4.0 percent. Tourism, manufacturing, shipping, and defense are the major components of the area's economic base. More than one-half of the manufacturing employment in the metropolitan area is located in Pinellas County (St. Petersburg). There is a significant concentration in durable goods, particularly industrial machinery and equipment, and electronic and other electrical equipment. From 1992 through 1995, single-family building permits averaged 10,150 units, reaching a peak of 11,000 in 1994. Activity for the first half of 1996 totalled 4,992 units, almost identical to the comparable 1995 level. Home sales through May 1996 increased about 20 percent compared with the volume in the corresponding period in 1995. In Hillsborough County sales are up 25 percent, with the average sales price rising almost 7 percent to $109,984. In the southern part of Pinellas County, which accounts for an estimated one-third of all sales activity in the county, sales prices are up approximately 10 percent and sales volume has risen just over 10 percent. Since the beginning of 1993, multifamily building permits increased each year to almost 4,200 units in 1995. Multifamily permit activity in the first 5 months of 1996 is down about 13 percent to 1,860 units. The apartment association for the Tampa-St. Petersburg area reported that apartment occupancy was 96 percent during the third quarter of 1995. This figure was up from 94 percent in the same quarter of 1993. During this same period, the average rent for a two-bedroom, two-bath unit increased 3 percent to $569. ------------------------------ MIDWEST The Midwest economy continued to perform well during the second quarter of 1996. Through May all States in the region reported employment gains and unemployment rates below the national average. Construction, retail trade, and business services provided the largest number of new jobs. Private surveys of business conditions showed strengthening of local economies throughout the second quarter in the Chicago, Detroit, Cleveland, Cincinnati, and Grand Rapids metropolitan areas. Homebuilding activity in the first half of the year was strong overall, but apartment construction is showing signs of slowing after several years of high production. Employment gains in Illinois reduced the State's unemployment rate to 5.2 percent in May 1996, one of the lowest in the past 15 years. Minnesota is increasing employment at a faster pace than the region, up 2.3 percent annually compared with 1.6 percent last year. Economic conditions are particularly strong in the Minneapolis-St.Paul area, which has experienced strong growth in construction and business service employment. In 1995, for the second consecutive year, Ohio ranked first in the Nation for new and expanded businesses. Single-family construction in the region, as measured by building permits, showed continued strength in the second quarter of the year. During the first half of 1996, permits were issued for 94,300 single-family units, a 15-percent increase over the comparable 1995 period. All States showed gains in single-family activity, with increases in building permits ranging from 20 percent in Indiana and Minnesota to 9 percent in Illinois. Single-family activity in the first 6 months of 1996 was especially solid in the Minneapolis-St. Paul area, where permits were up 27 percent (7,550 units) compared with the same period a year earlier. Twin Cities area builders reported increased demand for large, amenity-rich homes that, combined with a declining supply of buildable lots, contributed to the sharp 11-percent rise in the average sales price to $165,600. In response to the shortage of affordable housing in Minnesota, particularly outside the Twin Cities area, the $25 million Greater Minnesota Housing Fund has been established by the Blandon and McKnight Foundations. The fund hopes to leverage $225 million more in public and private development financing for both sales and rental housing. Continuing to benefit from a healthy economy, Wayne and Oakland Counties in the Detroit area saw strong sales of existing homes in the second quarter of 1996. Indiana showed a significant 20-percent gain in single-family permit activity (15,400 units) in the first 5 months of 1996. While sales were up in the first quarter of 1996 compared with the same period in 1995, builders reported activity began to slow in April and May to about 1995 levels. In response, builders have begun to cut back production; permits in the second quarter were below 1995 levels for the same period. In Illinois sales of existing homes in April were the highest since August 1995, and activity remained brisk in May. Condominium sales have been particularly strong in Chicago; the sale of almost 500 new units in the first 3 months of 1996 was nearly double 1995's first-quarter volume. The market response has been strong to the $50 million in single-family mortgage revenue bonds issued by the city of Chicago; about 600 moderate-income homebuyers ($25,000 to $62,000 annual income) have received financial assistance with their downpayments. Multifamily housing production in the Midwest began to slow slightly in the first half of 1996. Nonetheless, 22,900 units were permitted through June, only 4 percent below the 1995 figure, which was a robust year for apartment construction. Absorption of new rental units has been excellent in Minnesota due to the State's generally tight markets. Production has been largely confined to high-amenity townhomes. Apartment occupancy in the Indianapolis area as of the second quarter of 1996 was 94 percent, down slightly from the second quarter of 1995. Developers report steady absorption of new units. The market is expected to become more competitive during the remainder of 1996 as the 2,100 units under construction enter the market. The Madison, Wisconsin, rental market has absorbed almost 2,000 units annually since the beginning of 1994, with overall occupancy holding steady at about 95 percent as of March 1996. Apartment occupancy in the Chicago metropolitan area remains around 95 percent, although rent concessions are becoming more common in existing projects in suburban Cook and Du Page Counties. Rents are increasing 6 to 8 percent annually in downtown Chicago, and for the first time since the late 1980s, highrise apartments are being planned. Low vacancies and improving rents in suburban Detroit communities have stimulated builder interest in FHA multifamily insurance programs. Michigan's HUD office reported a significant increase in multifamily mortgage insurance applications in 1996 compared with last year. Most of the proposals are for Oakland County. Spotlight on Cincinnati, Ohio-Kentucky-Indiana The Cincinnati metropolitan area has a well-diversified economy. Strong job growth of 2.9 percent annually during the 12 months ending in May 1996 has helped reduce the unemployment rate to 4 percent, one of the lowest in the Midwest. The services; trade; and finance, insurance, and real estate sectors have provided the largest number of new jobs during the past 12 months. Population in the Cincinnati area has been growing modestly and is now close to 1.6 million. The Kentucky part of the metropolitan area has been an important contributor to economic growth. In Boone County, the location of the area's regional airport, construction has begun on a $750 million project for new infrastructure and runways and airline terminal improvements. Toyota Motor Corporation will soon open its North American Headquarters in Kenton County, relocating 200 personnel from Lexington and Georgetown, Kentucky, and hiring another 350 employees by 1998. Downtown Cincinnati is experiencing significant development. Activity is focused in the Fountain Square West area, where a new Lazarus department store and specialty retail shops are under construction. Planned sports stadiums for the Reds baseball and Bengals football teams received a boost from Cincinnati area voters, who have approved a 1/2-percent tax on retail sales in Hamilton County to help fund these projects. Other revitalization projects include Bancorp Corporation's planned 20-story office tower, the recently completed $80 million Aronoff Theater Arts complex, and a $31 million library addition. New luxury apartments are also a visible aspect of downtown Cincinnati revitalization. The first two phases of Garfield Place have been completed in the downtown area. The 212 units in this project are near the top end of the market, with one-bedroom units renting for $500 and two-bedroom units for $900. Absorption of the units has been good, and construction has begun on a third phase of 42 units. City officials are working to preserve the stock of affordable housing. The Urban Land Institute recently completed a report that recommended the transformation of the Over-the-Rhine area located just north of downtown to a mixed-income neighborhood. More than half of the 4,000 units in the area are subsidized by HUD's Section 8 program. A large percentage of the remaining units are in poor physical condition. Nonprofit groups are renovating buildings and improving the stock in this area using the LIHTC program and other sources of Federal funds. Affordable new homes also are being built in the Betts-Longworth neighborhood near downtown; the City-Rama home show will exhibit units priced between $100,000 and $125,000. Single-family home permit activity in the Cincinnati area has increased significantly from an average of 4,000 units annually in the 1980s to a little more than 6,200 units annually in the 1990s. Construction in the suburban Ohio communities near Interstate 275 has been active. New homes in these areas start at around $160,000, with typical single-family detached units in the $225,000 to $250,000 range. Existing home sales in the metropolitan area for the first quarter of 1996 were 13 percent above the same period of 1995. The Cincinnati area rental market is balanced, with a vacancy rate in the 5- to 6-percent range. Multifamily housing building permits have remained relatively stable, averaging approximately 2,550 units annually since 1990. The most active areas are the Interstate 71 northeast corridor, which has the highest rents; Clermont County, where low-cost land has attracted developers; and the Kentucky suburbs near the airport employment centers. New apartment units are being absorbed well. A 278-unit project in northeast Hamilton County, for example, is renting 18 to 20 units a month. ------------------------------ SOUTHWEST Nonagricultural wage and salary employment in the Southwest increased by 384,700 from June 1995 to May 1996 compared with the previous 12 months, a solid gain of 3 percent. The largest percentage increases were in the construction and services sectors. New Mexico continued to post the highest percentage gain of 4.2 percent, followed by Texas at 3.2 percent. Among major markets in Texas, Austin generated the biggest employment gains, followed by San Antonio. Dallas and Fort Worth also had strong increases, while Houston showed a moderate job-generating trend. Texas' border cities have begun to show expanding job markets, reversing nearly 16 months of weak performance. Nonfarm employment in Arkansas during the 12 months ending in May 1996 was up 25,200 jobs over the previous 12-month period. The largest gains were in health, business, and other services. Oklahoma City's economy should get a boost from the recently announced expansions by private contractors at nearby Tinker Air Force Base (AFB). Boeing announced plans in June to add 1,005 jobs during the next 6 years to fulfill aircraft maintenance contracts they have with the Air Force and Navy. Two weeks later Northrup-Gruman Corporation stated that it will employ more than 400 engineers and computer programmers to support the B-2 bomber when it becomes operational and moves to Tinker next year. Tinker AFB currently employs 8,750 military and 12,550 civilian personnel. Homebuilding activity continued to be very strong in the Southwest in the first half of 1996; permits were issued for 65,300 single-family units, a 26-percent increase over the same period in 1995. Single-family permits were up 23 percent in the Dallas-Fort Worth area, 37 percent in the Houston area, and 28 percent in the San Antonio area. Austin-San Marcos reported a 72-percent increase in activity for the first half of the year. In the Oklahoma City metropolitan area, permits were issued for 2,129 single-family houses during the first 6 months of 1996, a 33-percent increase over the first half of 1995. Albuquerque, New Orleans, and Tulsa also recorded substantial gains in single-family permits. While single-family activity is up in every major market in Texas, multifamily activity has shown mixed results. Activity for the first 6 months continued to be strong in Austin-San Marcos, with the number of multifamily units permitted up 53 percent. In contrast, multifamily activity declined 42 percent in the Dallas-Fort Worth area. All States in the Southwest have actively participated in the LIHTC program. Most LIHTC projects in Texas, New Mexico, Arkansas, and Louisiana designate 100 percent of the units for households earning 60 percent or less of the median family income. In Louisiana most of the LIHTC projects are being built in first-ring suburbs. In Texas a number of LIHTC projects have been built in rural areas with Rural Housing Service financing. In the past much LIHTC development in Arkansas has been in the small cities, some of the new suburbs of Little Rock, and the metropolitan areas of northwest Arkansas. Recently, housing proposals in the slower growing areas of Arkansas have been awarded most of the tax credits. Albuquerque is using bond-refunding proceeds to develop affordable multifamily housing for New Mexico residents. The city is also asking developers of single-family subdivisions to set aside lots for low- and moderate-income families. Spotlight on Austin-San Marcos, Texas Austin, the State capitol, is home of the University of Texas, with over 50,000 students in the area. Southwest Texas State University in San Marcos has more than 20,000 students. The census population estimate for the 5-county area was almost 1 million in July 1995, up some 154,000 persons or 18 percent since 1990. Semiconductor production, personal computer manufacturing, and software development continue to be the major factors affecting the Austin area's rapid growth. Austin's high-technology manufacturing and service industries employ 75,000 persons in nearly 700 different companies. Since 1990 manufacturing has grown by 18,000 new jobs, a 35-percent increase. This growth trend is expected to continue based on recent announcements. IBM is relocating 700 technical jobs to the area, Samsung is planning to build a $1.3 billion microchip manufacturing plant that will employ 900 to 1,000 employees by the end of 1998, Cypress Semiconductor is preparing for a $500 million expansion, and Dell Computer is planning to add 1,500 employees. State and Federal government employment is also a significant factor in the Austin metropolitan area's economy, constituting almost 25 percent of total jobs. This total includes employees at the two major State universities, State and local government, and an Internal Revenue Service processing and monitoring center. Overall nonagricultural wage and salary employment growth last year was a very high 6.6 percent, following similarly strong growth rates of 6.8 percent in 1994 and 7 percent in 1993. Labor market experts are predicting job growth in the 3.5- to 4.5-percent range for the next several years. Even at this reduced rate, Austin would be one of the fastest-growing areas in Texas. From 1990 through 1995, building permits were issued for 43,675 units in the Austin metropolitan area. Single-family construction accounted for 29,545 units. More than 90 percent of the 14,130 multifamily units permitted were in Travis County (Austin). More than 75 percent of the multifamily permit activity in the metropolitan area during this period occurred in 1994 and 1995; with permits issued for over 6,300 units in 1995. In the first half of this year, permits were issued for 4,552 single-family and 2,211 multifamily units, increases of 72 and 53 percent, respectively, over the first half of 1995. Sales for both new and existing homes remain strong. The median sales price of an existing home in the Austin area as of the first quarter of 1996 was $111,800, up almost 14 percent from the first quarter of 1995. The Austin Multiple Listing Service recorded 11,262 sales in the 12-month period ending April 1996, up 9 percent from the previous period. To date absorption of the large supply of new rental units has been solid. According to Capital Market Research, apartment occupancy in the Austin area was 95 percent in June 1996, despite the completion of almost 3,600 units in the first half of the year. There are 6,254 units under construction in the metropolitan area and more than 4,000 units in 16 projects with site plan approval. This large supply of new units suggests a much more competitive rental market during the next 2 years. ------------------------------ GREAT PLAINS Nonagricultural wage and salary employment in the Great Plains increased by 117,100 jobs from May 1995 to May 1996, a healthy annual growth rate of 2 percent. Kansas led the way with a 2.6-percent job growth rate. The May 1996 unemployment rate for the region was a low 3.6 percent. Nebraska's unemployment rate has fallen to 2.8 percent. Kansas, which added 30,800 jobs, continued as the region's fastest-growing economy as a result of strong growth in the Wichita and Kansas City metropolitan areas. Wichita's economy generated 6,700 new jobs (2.6 percent) from May 1995 to May 1996, due largely to a sharp rebound in the aircraft industry. In DRI/McGraw-Hill's America's Clusters report, Wichita is listed as second only to the Seattle-Tacoma-Bremerton area as the largest manufacturing cluster for aerospace/defense in the United States. Boeing, Cessna, Raytheon (formerly Beech Aircraft), and Learjet employ more than 30,000 persons in the area. All four aircraft manufacturers are currently on an upswing that many observers think is the long-awaited major expansion of production that could last up to 20 years. With an already low unemployment rate of 3.7 percent and labor shortages, Wichita has begun recruiting aerospace workers from outside the area. This June a job fair was held in St. Louis and others are scheduled for States with major concentrations of aerospace employees. The Kansas City metropolitan area continued its strong economic growth by adding 26,200 jobs (3.0 percent) during the 12 months ending in May 1996. Growth was fueled by casino construction, renovation of downtown buildings, and residential construction. Recent announcements indicate that Kansas City's economy will remain strong. The Harley-Davidson Motor Company recently purchased 330 acres to construct a 300,000-square-foot plant to manufacture its Sportster motorcycles. Production at the facility is scheduled to begin in 1998. The company expects that some of its suppliers will also move to the Kansas City area. In addition, Allied Signal Commercial Avionics Systems intends to relocate 1,100 jobs to Kansas City during the next 18 months. The firm is building its headquarters and a manufacturing plant in suburban Johnson County, Kansas. Building permits for new residential construction in the Great Plains totalled 31,974 units during the first 6 months of 1996, up 32 percent from the first half of 1995. Building activity in Kansas was up 75 percent, going from 4,832 units in 1995 to 8,468 in 1996. Activity also rose in Nebraska (24 percent), Missouri (23 percent), and Iowa (15 percent). In 1995 the Kansas City area had its highest residential construction volume since 1987, with building permits reaching 11,215. The housing market remains strong, with permits for the first 6 months of 1996 totalling 6,770 units, a 51-percent increase over the 1995 level. Low levels of multifamily housing construction from 1989 through 1993, combined with recent robust job and population growth, have lowered the apartment vacancy rate to about 5 percent from a peak of about 13 percent in the late 1980s. The tighter rental market has resulted in recent rent increases. Apartment builders responded in 1995, pushing the yearly total of multifamily permits to 2,900 units, almost 3 times the annual average for the previous 6 years. This pace has continued into 1996; for the first 6 months, permits were issued for 1,463 multifamily units compared with 569 units during the first half of 1995. Demand for rental housing should be strong enough to support the increased level of apartment construction without driving up the vacancy rate. Lawrence, Kansas, the home of the University of Kansas, is also experiencing a sharp housing construction upturn, with 1,132 units permitted in the first half of the year compared with 321 units for the first half of 1995. Multifamily housing volume was particularly impressive, with 887 units permitted thus far in 1996, up from 104 in 1995 and 123 in 1994. Lawrence has become popular as a bedroom community for people working in Kansas City and Topeka. Spotlight on St. Louis, Missouri-Illinois St. Louis metropolitan area unemployment dropped from 4.8 percent in May 1995 to 4.1 percent in May 1996. In St. Charles County, the metropolitan area's fastest growing county, the unemployment rate was 2.7 percent in May 1996. Area employers added 18,000 nonfarm jobs, or 1.4 percent, in the 12 months ending in May 1996 compared with the 12 months ending May 1995. Most of the increase was in service industries, such as recreation, business services, and restaurants. Manufacturing lost employment during the year, despite a strong resurgence in vehicle assembly by the big three automobile manufacturers. Automobile industry employment is up 25 percent in May 1996 over May 1995. However, cuts in metal products, aircraft manufacturing, food products, chemicals, and oil refining eliminated 4,500 manufacturing jobs, exceeding the strong 12-month gains in the automobile industry. The Defense Base Realignment and Closure Commission's cutbacks announced in June 1995 hit the St. Louis metropolitan area hard. The Army's Aviation and Troop Command (ATCOM) in St. Louis will be moved to other locations in the United States by the end of 1997, affecting more than 3,600 military and civilian employees. Single-family permits in the St. Louis metropolitan area were up 11 percent in the first half of 1996 compared with the first half of 1995. Most of the construction was in St. Louis and St. Charles Counties. The share of home construction will continue to increase in St. Charles County, which has a greater supply of developable land and is less costly than St. Louis County. Sales of single-family homes were up 35 percent during the first quarter of 1996 over the same period in 1995. This is a significant increase considering that sales declined by 2 percent from 1994 to 1995. Apartment construction has picked up in 1996 due to market conditions that continue to improve. Multifamily building permits for the first half of the year totalled 1,024 units compared with 621 units for the first half of 1995. There has been a marked improvement in apartment occupancy rates during the last 18 months. Except for a couple of soft spots, the overall market is fairly balanced, and rent levels have begun to rise at modest rates. On the Illinois side of the metropolitan area, several major developments are under way, or will be shortly, that will have a significant impact on the region's future economic growth. The $300 million Mid-America Airport is currently under construction in St. Clair County. The airport will relieve traffic at St. Louis Lambert International Airport, which serves as a hub for TWA. The new airport, which is scheduled to open in October 1997, will help support the region's increased air travel. Besides providing passenger service, it will add significant cargo-carrying capacity to the St. Louis region. It was recently announced that an Air National Guard unit from Chicago's O'Hare Airport will move to Scott AFB. The move of the 126th Air Refueling Wing is expected to create 342 new full-time and 1,314 part-time jobs by 1999. As part of the move, $94 million will be spent for new facilities and runway extensions at the base. The U.S. Department of Transportation has announced it will fund a $295 million extension of the MetroLink light-rail service from east St. Louis to Belleville Area College and eventually to the new Mid-America Airport. When completed, the second phase of MetroLink will run from St. Louis Lambert International Airport to the new Mid-America Airport in Illinois. Funding is scheduled for the Fall of 1996, with the design and engineering work beginning immediately. The new section will be 17.5 miles long and will consist of 12 stations and 9 Park & Ride lots. The target date for opening is 2001. ------------------------------ ROCKY MOUNTAIN Employment gains in the second quarter were ahead of first-quarter increases in most Rocky Mountain States. Utah's annual growth rate was up to 5.8 percent, the second-fastest rate in the Nation. Colorado's 4.5-percent increase was not far behind. Wyoming's growth of just over 1 percent continues to lag the other States; however, Montana, North Dakota, and South Dakota all posted moderately strong gains of about 3 percent. The construction boom continues with double-digit percentage employment gains in Utah and Colorado. Increased residential building is responsible for some of the increases, but commercial building is also up substantially. The $760 million expansion of the E-470 beltway in the Denver metropolitan area is under way and will boost the construction sector considerably. Manufacturing growth was limited in most States except South Dakota and Utah. The services sector continues to provide more jobs than any other major sector, with impressive gains in business and health services. After a slow start, the winter tourism season posted a new record for skier visits to Colorado and was Utah's second best year. Cattle producers remain squeezed by low beef prices and high grain prices. Colorado's wheat crop was pummelled by hail recently after a Spring drought destroyed much of the earlier crop. Labor markets remain tight throughout the region. North and South Dakota have unemployment rates hovering around 3 percent. Employers in many areas report difficulty finding workers with appropriate skills. The quality and skills of the labor force were the top issues concerning firms replying to a recent survey by the Denver Metropolitan Chamber of Commerce. Retailers, however, were pleased with the turnout and qualifications of workers at a recent job fair held to fill the 2,000 jobs at the Park Meadows shopping mall southeast of Denver. The number of housing units authorized by building permits in the first half of 1996 was up almost 20 percent from last year. The rate of increase was greatest in Wyoming, where the building permit total was up by more than 50 percent. Single-family activity rose in most States, but especially in Colorado. Apartment construction, which is concentrated in Colorado and Utah, is booming. Multifamily units permitted were up more than 31 percent in Colorado and almost 28 percent in Utah during the first half of 1996. Most rental markets are holding up well in the face of this increased construction activity. Absorption of new rental units has generally been solid. Leasing has been particularly strong in Colorado Springs and Salt Lake City. Units are occupied as soon as they are completed and entire buildings are often preleased. Denver's rental market was steady during 1994 and the first half of 1995. However, by the Fall of 1995, rent concessions began to appear and have now become widespread. Projects that leased up in 1994 above their proforma rents now offer concessions to maintain occupancy. The vacancy rate has increased only marginally to date and remains below 6 percent. Nevertheless, the rental market is more competitive, a situation that soon may be replicated in Colorado Springs and Salt Lake City. The LIHTC program remains popular in the Rocky Mountain region. Most recent projects are 100-percent rent restricted. Many projects now have a portion of units aimed at groups earning less than 40 and 50 percent of the median income. Nonprofit sponsors have typically targeted some units to these groups, but now even profit-motivated developers are reserving units for the lowest income groups to increase their ability to compete in the tax-credit allocation process. Existing home sales surged 15 percent in the first quarter, with gains recorded in all States except Wyoming. South Dakota led with a 22-percent increase over the first quarter of last year. Home prices continue to climb, but the rate of increase has slowed in some areas. Salt Lake City's huge 18-percent gain in the median sales price from 1 year ago set the pace for the region. Spotlight on Pueblo, Colorado Pueblo's economy so far in 1996 has recorded a reduced growth rate from the rapid pace of the past few years. Dominated by the Colorado Fuel & Iron (CF&I) Steel company through most of its history, the local economy suffered through much of the 1980s when employment at that plant declined to a fraction of its peak level of more than 8,000 workers. Beginning in the mid-1980s, the low cost of doing business in the area and local promotion efforts started to attract defense-related, machine manufacturing, warehousing, telemarketing, and health care companies. These industries combined have added nearly 4,000 jobs to the economy in the past 10 years. The pace of growth slowed in the first half of 1996 as plant closures and layoffs in manufacturing offset some of the continued gains in health care and insurance and retail trade. Total employment increased by only 1 percent in the 12 months ending in May 1996, considerably below the average 4.5-percent growth rate recorded in 1994 and 1995. The unemployment rate of 5.5 percent in 1996 is low by local historical standards, but remains above the State average. The potential for stronger growth in the second half of the year is good. Retail construction will continue as several restaurants, grocery stores, and warehouses are slated to break ground. McDonnell Douglas Aerospace is completing construction of a facility that will add 200 new workers. QualMed Health Insurance will add 500 to 600 workers to the downtown area, occupying space in 4 historic buildings currently being renovated. The new Pueblo Convention Center has recently started construction, and the $13 million Historic Arkansas River Project (HARP) is expected to break ground this year. HARP will rechannel part of the Arkansas River back to its original flow pattern through downtown Pueblo. The focal point of the project is the riverwalk, which is expected to draw businesses, local citizens, and tourists to the downtown area. Prison construction projects are expected to begin this year in Pueblo and nearby Canon City. Residential construction activity remained essentially dormant until 1993, when the market finally absorbed the earlier excess capacity. Single-family permits have accelerated dramatically since then, and in the first half of 1996 are approaching a record pace. Multifamily construction also increased substantially during the past 18 months. There are several market-rate and affordable multifamily housing projects in the pipeline. Sales of existing homes remain strong despite the high level of new construction. During the first 6 months of 1996, the average sales price increased by 18 percent to nearly $90,000 compared with the same period last year. Sales are most active in the first-time buyer range of $70,000 to $80,000, although demand is strong for all price ranges under $100,000. Much of the new construction in the Pueblo area has been for the move-up market, priced from $130,000 to $170,000. Homes in this price range also move quickly. Sales for both new and existing homes priced above $200,000 are moving slower than the rest of the market. The county and city of Pueblo jointly issued $33 million in revenue bonds that will provide financing for nearly 500 first-time homebuyers. Lower income households were also aided by Home Investment Partnership Act (HOME) funds for deferred loans on their downpayments and the Neighborhood Housing Service (NHS) for counseling services. All lower income owners (nearly 160) used FHA mortgage insurance, mostly for rehabilitation loans. The Pueblo Housing Authority also allows some very low-income tenants to become homeowners under the Homeownership for People Everywhere (HOPE) programs. The housing authority, in partnership with a local bank and the NHS, adds about five new owners a year. Many of these homes under the county/city and housing authority programs are in older neighborhoods where these programs have significantly aided neighborhood revitalization. The rental market is tight. New two-bedroom units are renting for $550, while existing projects in the $450 to $500 range are full. The market will remain tight due to continued growth in the economy. An FHA/Colorado Housing and Finance Authority risk-sharing project of 108 units should begin construction this Fall and help ease the current shortage. ------------------------------ PACIFIC The Pacific economy continues to improve. In the 12 months ending in May 1996, employment in California increased by 300,000 jobs, a strong 2.4-percent gain. High-technology exports, motion pictures, business services, electronics manufacturing, wholesale trade, and construction are the leading sources of growth. The San Francisco Bay Area had the highest rate of growth, paced by Silicon Valley's electronics and software sectors. Southern California showed a solid 2-percent increase in employment. Sacramento, due to its electronics production, is outperforming an otherwise lagging Central Valley region, whose large agricultural base was affected by late rains. The Arizona economy recorded a 4-percent rate of employment growth in the 12 months ending in May 1996, adding more than 70,000 jobs. While the gain was below the 93,000 increase in jobs in the prior 12 months, it was still one of the largest in the Nation. High-technology manufacturing, tourism, and construction for an increasing population led the expansion, which has occurred primarily in the Phoenix area. Nevada gained nearly 59,000 new jobs in the 12 months ending in May 1996, a 7.5-percent gain that led the Nation. Three-fourths of the growth was in the Las Vegas area, where the 1,500-room Stratosphere Tower and the 3,000-room Monte Carlo casino/hotels opened in the second quarter, adding a total of more than 6,000 jobs. There is no letup in gaming expansions scheduled or under construction, underpinning the U.S. Department of Commerce projection that Las Vegas will be the fastest-growing metropolitan area in the country in the 1993 to 2005 period. Hawaii's economy is gradually stabilizing, with improved tourism and retail trade beginning to offset weakness in other sectors. Summer visitor bookings have increased, bolstered by expansions of airline services and improving California and Asian economies. The improved economy in California and continued strong growth in Arizona and Nevada pushed up the region's single-family building permit activity (72,710 units) by 14 percent in the first 6 months of 1996 over the comparable period in 1995. Activity in Arizona and Nevada increased 17 and 14 percent, respectively, over strong performances last year. California's comeback continued with a 14-percent gain, bringing single-family permits to 36,518. Sales of existing homes were generally strong throughout the region. In California single-family resales were up 28 percent in the first 5 months of this year over the same period in 1995. In the Phoenix area, resales increased 24 percent over last year's strong levels, and existing sales in Las Vegas were up 40 percent. Sales prices advanced 3 to 4 percent in Phoenix and Las Vegas, and were up 1.5 percent in California markets. Strong rental demand supported a 12-percent increase in the number of multifamily units permitted in the region in the first half of 1996. In Arizona and Nevada, multifamily units were up 5 and 38 percent, respectively, through June. Phoenix and Las Vegas rank first and second in the United States in the number of multifamily units permitted so far this year. While apartment occupancy in both areas is running about 95 percent, some submarkets are showing signs of softer market conditions. California rental markets are strengthening, resulting in a 23-percent increase in the number of multifamily units (8,792) permitted in the first 6 months of the year, but levels are still fairly low. Most of the San Francisco Bay Area has tightened considerably, with rental vacancy rates of 3 percent or less. Vacancy rates in the Sacramento area have declined to about 6 percent due to stronger job growth, while slower growing Fresno is moderately soft with about an 8-percent vacancy rate. Improvement in the local economy and lack of new construction have helped reduce Los Angeles County's overall rental vacancy rate to 8.9 percent from 9.8 percent in 1995, according to a new study by the Apartment Owners Association of Southern California. All areas of the county experienced a vacancy rate decline, except for the San Fernando Valley. Submarket vacancy rates are lowest in the San Gabriel Valley and highest in the eastern part of the county. Weak conditions prevail in Riverside County, where vacancy rates of 13 to 15 percent are common. Spotlight on San Francisco, California As of May 1996, nonagricultural employment for the San Francisco metropolitan area totalled 920,000, an increase of 1 percent over May 1995. The economy is now recovering the substantial job losses that followed the 1989 earthquake and the subsequent recession. May unemployment was 4.1 percent, an improvement from the 5.2- percent rate last May. Construction (5.2 percent) and durable goods manufacturing (5.7 percent) posted the largest percentage gains in employment growth. The Federal Government remains a major employer, but its role has diminished with the closing of military bases at the Presidio and Treasure Island. Construction employment has been boosted by a $140 million main library and new municipal courts and State office buildings, all in the San Francisco Civic Center. City hall and the opera house, also in the Center, are being renovated. Other major plans include building a baseball stadium, expanding the convention center, and converting the old library into the Asian Art Museum. HUD has allocated $72 million to demolish three distressed public housing projects and replace them with 560 new units. HUD also has committed funds to leverage construction of two mixed-income rental townhouse communities totalling 250 units in the Visitacion Valley neighborhood. One of these developments will occupy the site of Geneva Towers, another assisted-housing project to be demolished. Prices of existing homes in the Bay Area fell during the early 1990s, but have been recovering since mid-1994. The median sales price of $252,200 as of the first quarter of 1996 is still the second highest (next to Honolulu) of any metropolitan area in the United States. While high construction costs and the limited supply of available building sites are major constraints, single-family home construction has increased in the metropolitan area over the past 2 1/2 years, averaging approximately 1,050 units annually, compared with less than 800 units annually from 1991 through 1993. Bay Area rental housing construction had been relatively stable. From 1990 through 1995, an average of 1,265 multifamily housing units were permitted annually. In the first 6 months of 1996, however, permits were issued for 915 units, more than double last year's volume for the same period. ------------------------------ NORTHWEST Nonagricultural wage and salary employment in the Northwest grew by a healthy 2.4 percent (188,575 jobs) from the second quarter of 1995 to the second quarter of 1996. Economic expansion has gained momentum with the aerospace industry recovery. With employment growth in the high-technology, banking, construction, utilities, and services sectors finally coinciding with an aerospace boom period, the region's economy is expected to remain strong during the remainder of this decade. Second-quarter 1996 versus second- quarter 1995 employment was up 3.5 percent in Idaho, 3.4 percent in Oregon, 1.8 percent in Washington, and 0.4 percent in Alaska. The region's unemployment rate for the second quarter was 5.8 percent compared with 5.9 percent during the same period in 1995. Among the metropolitan areas, the lowest unemployment rates were in Boise (3.7 percent) and Portland (3.8 percent). Oregon employment averaged 1,460,600 persons during the second quarter of 1996. Electronics led the manufacturing sector in job growth, with an increase of 4,300 workers over the second quarter of 1995. Job expansion in electronics can be expected to continue to improve during the year with the completion of several memory chip and silicon wafer factories around the State. The largest increase in nonmanufacturing was in construction, with 7,300 jobs. Oregon has critical worker shortages throughout the State in occupations ranging from sheet metal workers to physician's assistants. Because the labor market is unlikely to adjust very quickly to these shortages, job growth in Oregon is likely to slow in the remainder of 1996. Contributing to the tight labor market conditions has been a decrease in in-migration during the first half of 1996, about 33 percent lower than the 1995 total for the same period. Single-family construction, as measured by building permits, was up 16 percent (30,342 units) in the Northwest region through June 1996 compared with the first 6 months of 1995. The number of single-family permits issued was up in every State. Idaho had the largest percentage increase (22 percent), followed by Washington (16 percent). Multifamily housing activity (11,224 units) in the first 6 months of 1996 was down a modest 6 percent from strong 1995 levels for the same period. Median sales prices of existing homes throughout the Northwest appreciated slightly during the first quarter of 1996 to $116,500 in Eugene-Springfield, $135,800 in Portland, $160,700 in Seattle, and $99,400 in Boise. Rental market conditions in Washington range from balanced to soft. The market is extremely soft in the Tri-Cities area, with rental vacancy rates more than 15 percent. In contrast, Oregon rental markets are tight. The apartment vacancy rate in Portland is below 4 percent; a survey of 75,000 units conducted in May by McGregor Millette & Associates showed a vacancy rate of 3.7 percent compared with 4.7 percent in May 1995. Housing affordability and availability is a major problem in the Northwest. HouseSeattle, a Federal National Mortgage Association (FNMA) program, has designated $1.5 billion for the Puget Sound region to promote homeownership and to provide affordable multifamily dwellings. This 5-year program announced in October 1995 is targeting $1.3 billion for homeownership and $200 million for multifamily projects to approximately 18,000 low- to middle-income families. During the fourth quarter of 1995 and first quarter of 1996, nearly $18 million was committed for multifamily units and $18 million for homeownership programs. Spotlight on Seattle-Bellevue-Everett, Washington The Seattle area economy grew rapidly in the late 1980s, slowed with the downturn in the aerospace industry in the early 1990s, and since 1995 has again begun to expand significantly. In the second quarter of 1996, employment averaged more than 1.2 million, up 3.2 percent (38,000 jobs) from the second quarter of 1995. Services, especially business services, such as those provided by Microsoft, make up the bulk of new employment. During the aerospace recession, Microsoft added nearly 10,000 jobs to the local economy, with average annual wages of $80,000 per worker. The recovery in aerospace together with continued growth in the software, high-technology, services, and retail trade industries are expected to stimulate economic expansion throughout the entire Puget Sound region. Employment is projected to grow by 3 percent a year in 1996 and 1997. Boeing received orders for 346 airplanes in 1995, worth an estimated $31.2 billion, and orders have continued to come in thus far in 1996. In response to the growing backlog, the company announced plans to hire an additional 6,700 workers locally by year's end. Downtown Seattle is in the midst of the largest redevelopment effort in its history. New retail shops, hotels, housing, restaurants, theaters, and public buildings are under construction and in planning stages. Nearly 1 million square feet of retail space will be added during the next several years, including a new flagship store for Nordstrom. Other developments include a new baseball stadium, a waterfront renovation project by the Port of Seattle, and an expansion of the Washington State Convention and Trade Center. New residential projects include 569 units of luxury rental housing in 3 developments. Residential construction was relatively stable in the Seattle area from 1991 through 1995, with single-family permits averaging 8,650 units a year and multifamily units permitted averaging 4,250 units a year. Single-family permits totalled 4,884 during the first 6 months of 1996, up 3 percent compared with the same period in 1995. There were 2,571 new multifamily units permitted through June 1996, a 19-percent increase compared with the previous year. Housing sales were up 25 percent during the first half of this year compared with last year, with more than 14,700 homes sold. The median sales price for the first 6 months of 1996 was $164,950, an increase of 3.3 percent. Sales of moderately priced homes below $200,000 were strong. Condominium sales represented a significant portion of the affordable housing market. The median sales price for a condominium during the first half of 1996 was $114,750, and sales were up 20 percent compared with the same period last year. The rental market in the Seattle PMSA is balanced, with an overall rental vacancy rate of 5 percent. Tight market conditions prevail in some close-in neighborhoods of Seattle and eastern King County (Bellevue, Kirkland, and Redmond) where vacancy rates are 3 percent or less. With rental vacancies expected to decline, large rent increases of 5 to 7 percent are likely in the coming year in the tighter submarkets. According to the most recent Dupree and Scott Apartment Vacancy Report, the average rent in King County (Seattle) was $619 and in Snohomish County (Everett) was $587. Much of the new multifamily housing development in recent years has been geared to the condominium market. The continued popularity of condominiums will limit the amount of luxury apartments that this market can handle. Well-designed, high-quality condominiums are priced with monthly mortgage payments equal to or less than rents for high-end apartments. ------------------------------ Order Form U.S. Housing Market Conditions 2nd Quarter 1996 (dated: August 1996) To order additional single copies of this issue, send $5 (handling charge) with this form to: HUD USER P.O. Box 6091 Rockville, MD 20849 or fax 1-301-251-5767 ___ Check enclosed payable to HUD USER. ___ Government Purchase Order only (enclosed) No.: Charge my: ___ MasterCard ___ VISA Acct.# ___________________________________________________________ Exp. Date ________________________________________________________ Signature ________________________________________________________ Name _____________________________________________________________ Affiliation ______________________________________________________ Street Address ___________________________________________________ City _____________________________________________________________ State ____________________________________________________________ ZIP Code _________________________________________________________ Telephone Number (_______)________________________________________ For information on ordering multiple copies, call HUD USER at 1- 800-245-2691. This publication is also available on World Wide Web at http://www.huduser.org/pubs.html ------------------------------ U.S. Housing Market Conditions Future Issues To be notified of future issues of this report, mail this form to: HUD USER P.O. Box 6091 Rockville, MD 20849 Name _____________________________________________________________ Affiliation ______________________________________________________ Street Address ___________________________________________________ City _____________________________________________________________ State ____________________________________________________________ ZIP Code _________________________________________________________ Telephone Number (_______)________________________________________