U.S. Housing Market Conditions 3rd Quarter 1996 November 1996 SUMMARY Housing starts have exceeded 1.4 million units for five consecutive quarters, the longest period in 7 1/2 years. Ignoring the brief downturn in early 1995, the housing production and marketing recovery has been going on for 6 1/2 years, longer than the housing recoveries of the 1970s and 1980s. Several measures of housing activity in the third quarter -- housing starts, manufactured (mobile) home placements, existing home sales, and the National Association of Home Builders' index of builders' views -- were above last year but down from the preceding quarter. Perhaps they reflected the quarter's rise in interest rates and the decline in affordability reported by the NATIONAL ASSOCIATION OF REALTORS (registered trademark) affordability index, both of which could be reversed in the next quarter. Or perhaps these increases are signs that the housing recovery has topped out and soon will begin the normal cyclical decline. Some measures of housing activity in the third quarter were unchanged or showed increases over the second quarter and over year-earlier figures. These measures included multifamily permits and starts, manufactured (mobile) home shipments, housing units under construction and completed, and sales of new one-family homes. New home sales have exceeded 700,000 units (seasonally adjusted annual rate) for three quarters, the longest period in 17 years. The Nation's homeownership rate rose to 65.6 percent in the third quarter, the highest level since an equal rate was measured the third quarter of 1981, exactly 15 years ago. Based on national economic conditions and outlook, with unemployment low and holding, incomes up, and consumer confidence improving, one could expect prospects for the housing industry to remain favorable for some time, stretching this recovery out another quarter or more. Homebuilders appear ready to take advantage of whatever develops in the market, whether it is expansion or retrenchment. After months of concern about the buildup in unsold inventory, their inventory at the end of the third quarter was down to the lowest absolute level since November 1994 and represented only a 5.2-months' supply at current sales rates. ------------------------------ New in This Issue This issue contains appendix tables that were developed or supported by HUD that are not available elsewhere. These tables, included once each year, contain the results of Random Digit Dialing telephone surveys that are conducted to estimate Fair Market Rents (FMRs) for selected market areas and regional FMR inflation rates for metropolitan and non-metropolitan areas in the 10 regions of the country. (Tables are not included in this ASCII plain-text file. To view the file in its entirety, download the Adobe Acrobat version.) ------------------------------ Regional Perspective HUD's field economists report that sales housing markets remain strong throughout much of the country as indicated by the brisk pace of home building and sales. The high volume of apartment construction is causing concern about rental market stability in some areas, however. Through the first 9 months of 1996, home construction, as measured by single-family building permits, showed continued strength in much of the Nation. At the current pace, the Southeast region could see its best homebuilding year thus far in the 1990s; Atlanta, with 29,300 homes permitted, is likely to surpass its previous record set in 1986. In the Southwest single-family permits were up 19 percent, with the Austin, Dallas-Fort Worth, and Houston areas showing big gains. The Rocky Mountain region also could set a homebuilding record for the 1990s. California is on its way back, with 15 of 25 metropolitan areas reporting increases in single-family permit activity over last year. In the Northwest manufactured homes have become a major factor in sales housing, recently accounting for more than 50 percent of the activity in Washington State's nonmetropolitan counties. The annual rate of existing home sales as of the third quarter of 1996 was up 2.2 percent over the third quarter of 1995. The annual rate of existing home sales in the Midwest region was more than 871,000, the second highest volume in the past 15 years. Builders in Minneapolis and Cleveland reported that traffic at recent home showcases in their areas exceeded expectations. The Dallas-Fort Worth area continued to experience its highest level of housing demand in 12 years. California home sales are set to be the best since 1989, and Phoenix is headed for a record year. Multifamily housing building permits increased only modestly during the first 9 months of 1996 compared with the same period in 1995. The largest percentage increases, from relatively low volumes previously, were in the New York/New Jersey, Mid-Atlantic, and Great Plains regions. Multifamily permits in New York State more than doubled, with New York City accounting for a significant part of the increase. In the Mid-Atlantic multifamily housing activity increased significantly in the Philadelphia area and the Northern Virginia suburbs of Washington, D.C. Great Plains multifamily housing was up 54 percent in response to strong demand in the Omaha, Lincoln, Wichita, and suburban Kansas City markets. In the Southwest the number of multifamily units permitted was down 9 percent, with every State reporting declines. While rental housing markets remain sound in most of the Nation, there are reports of more competitive conditions in a growing number of areas. There are concerns about the recent high volume of apartment construction in Nashville, Charlotte, Memphis, and Atlanta's north Fulton County. In Colorado Springs and Denver, rent increases have slowed or stopped, and concessions are beginning to appear. Las Vegas and Phoenix are showing signs of increasing vacancies, rent concessions, and deferred rent increases. ------------------------------ Surveying the Owners and Managers of Rental Housing The first national survey of rental property owners and managers, sponsored by HUD and conducted by the U.S. Bureau of the Census, is near completion. Acquiring knowledge about the owners and managers of the private rental stock is essential as Federal low-income housing policies become more dependent on the private sector for the provision of affordable rental housing. First, these new policies, using tenant-based subsidies (such as vouchers and certificates), require that the tenant receiving Federal assistance find housing in the private market, with private property owners and managers playing a crucial role. Second, Federal housing assistance is only provided to the most needy, and then only to a limited number; housing assistance is not an entitlement. As a result lower income families, many of whom are eligible for Federal assistance, must depend on the private-sector provision of affordable housing. The success of these tenant-based programs and the availability of affordable housing to low-income, unassisted families require more knowledge of the motivations, goals, policies, operating conditions, ownership forms, maintenance policies, revenue needs, conflict resolution methods, and tenant selection processes of the private rental sector. Survey Design and Current Status A sample of owners and managers was drawn from a list of all housing units in the United States to allow inferences about the entire rental stock. This selection procedure leads to valid inferences about "the owner of the typical rental unit," not "the typical owner." Two questionnaires were used: one for owners and managers of single-family properties; the second for owners of multifamily (2+-unit) properties. HUD and the U.S. Census Bureau developed these questionnaires utilizing information from several sources: a panel of housing research experts, a group of housing-related associations, focus groups of property owners and managers, and cognitive laboratory testing. The questionnaires were first mailed to sampled owners and managers. Followup of those owners who did not return their questionnaires was conducted by telephone and then by personal visits for a portion of the remaining nonrespondents. Of the original sample of 16,400, approximately 3,000 properties were out of scope, meaning they were owner-occupied, public or military housing, vacant and for sale, second or vacation units, or vacant and not available for rent or sale. As the field period continued, concern grew that not enough time or money remained to follow up all incomplete cases using personal interviews. Therefore, about 3,000 cases were subsampled out. Of the remaining cases, data collection was completed with owners and managers of more than 8,000 cases, leaving about 2,000 cases where the owner and manager refused to be interviewed or could not be located. The questionnaires covered a wide range of topics: acquisition of the property, characteristics of the property, financing, maintenance and capital spending plans, expenses and income, nature and form of ownership, management strategy, tenant relations, and governmental relations. Since specific units were sampled, owners and managers were asked about the specific unit, the property containing the specific unit, and all properties held or managed by responding owners and managers. Data collection is complete, questionnaire data have been edited and cleaned, sample weights are currently being refined, and tabulations are being prepared. This article presents some interesting, though preliminary, results using proportions estimated from data for multifamily properties. These early results should be viewed with caution since survey staff have not yet assessed the extent to which the lack of information from nonrespondents affects the results, nor have they calculated statistical margins of error. The next issue of U.S. Housing Market Conditions will contain further discussion of the results. In the future, HUD and the U.S. Census Bureau will produce a complete set of weighted tabulations for both single-family and multifamily properties, conduct and publish additional analyses, estimate sampling errors, and provide copies of the database using alternative media (expected in early 1997). Following are some of the survey questions and results tabulated thus far. Who are the owners of multifamily rental housing? The majority of housing units[1] (55 percent) are located in properties owned by individual investors, including joint ownership by two or more individuals. Limited partnerships are the second most common form of ownership (15 percent), with general partnerships (8 percent) and real estate corporations (7 percent) coming in third and fourth, respectively. The type of ownership is quite different for small properties compared with larger ones: Individual investors are overwhelmingly owners of small properties, while limited partnerships, general partnerships, and real estate corporations own more properties with 50 or more units. While nonreporting was rather high for personal and demographic characteristics of individual investors and partnerships, the majority of individually owned rental units were reported to have two owners (41 percent), with single-owner properties (37 percent) and properties with three or more owners (21 percent) accounting for somewhat less. About 70 percent of rental units are owned by holders of other properties. Owners of rental units are predominately male (81 percent), overwhelmingly white (89 percent), and have a median age slightly above 55 years old. How, why, and when were properties acquired? Purchasing was by far the most common method of property acquisition for rental units (84 percent). The second most common response was "through some other manner" (8 percent), and the remaining categories were checked infrequently: inheritance or gift (3 percent), foreclosure or assignment (3 percent), and tax-free exchange (1 percent). The most frequently reported main reason for acquiring multifamily rental property was to generate income (38 percent), followed by receiving long-term capital gains (16 percent), providing affordable housing (11 percent), maintaining a residence for self and family (10 percent, with 90 percent of these owning properties with four or fewer units), and providing retirement security (7 percent). The majority of rental units have been held by their owners for more than 10 years, with the median date of acquisition being about 1985. How do owners and managers feel about their properties? Owners and managers generally hold positive views of their properties. Most rental units have owners and managers who responded that, over the past year, their properties were more profitable or about the same as similar properties (12 and 49 percent, respectively), while only 13 percent believed that their properties were generating less income. Twenty-seven percent of rental units were held by owners and managers who were not sure or did not know how the incomes from their properties compared with others'. Most rental units were owned by owners and managers who thought that their properties were increasing or maintaining their values (26 and 42 percent, respectively) over a year ago, with only 13 percent responding that values had decreased in the past year. About one in five rentals had owners and managers who were not sure or did not know how the value of their properties had changed in the past year. Owners of one out of two multifamily properties (49 percent) stated that they intended to hold onto their properties for 5 or more years, while 38 percent "did not know." When asked the main reason for continuing to own the property, more than one-third (37 percent) of rental units had owners and managers who replied that it was income. Only five other categories were checked by more than 5 percent of the rental units with responding owners and managers: long-term capital gains (12 percent), affordable housing provision (10 percent), retirement security (9 percent), and residence for self or family (8 percent, with 86 percent of these owning properties with four or fewer units). Property ownership is generally profitable: Owners and managers most often answered that their properties earned a profit last year (44 percent of units), but losses occurred about one-fifth of the time (19 percent) and a break-even situation resulted about one-tenth of the time. (However, more than one-fourth of rental units had respondents who did not know or were not sure whether the rental property earned a profit.) Finally, rental units more often (49 percent) than not (23 percent) were held by owners who would acquire the same property again, with only about one-fourth (28 percent) owned by respondents saying they were not sure or did not know if they would purchase the property again. In almost all rental units, owners and managers handled all maintenance immediately and practiced preventive maintenance (88 percent), while very few postponed most maintenance but handled major problems as quickly as possible (4 percent). Maintenance plans for the next 3 years are nearly identical to current maintenance plans, with 90 percent of owners handling all maintenance immediately and practicing preventive maintenance. How do owners and managers describe the tenants they serve? Tenant incomes were most often characterized by owners and managers as low to middle income. The two most common responses were mostly middle income (31 percent) and mostly low income (31 percent), followed by somewhat diverse, with low- and middle-income tenants (21 percent); somewhat diverse, with middle- and upper-income residents (9 percent); very diverse (5 percent); and mostly upper income (3 percent). Most rental units (78 percent) had tenant income mixes that had not changed in the last 2 years, while those with changed tenant incomes most often had more middle-income tenants (44 percent). Tenants generally pay their rents on time: Owners and managers of about one-third of rental units reported no delinquencies, another one-third reported delinquency rates of between 1 and 9 percent, and about one-tenth related delinquency rates of 25 percent or more. For rental units with delinquencies, most owners were experiencing minor cash-flow problems (70 percent) with their properties, with about 1 in 5 having moderate problems and about 1 in 10 having serious cash-flow problems. Owners and managers of four out of five rental units reported that tenants never or rarely engage in undesirable behavior. Fewer than 1 in 25 rental units have tenants exhibiting frequent undesirable behavior. Over the past 2 years, owners and managers of about half of the rental units have had to take tenants to court, with about 1 in 5 going to court more than 5 times. (Ninety-four percent of these owners and managers have large properties containing 20 or more units.) On the other hand, owners and managers of about 1 in 10 rental units report being taken to court by tenants. Eviction procedures were reported to have been initiated quite often (60 percent) over the past 2 years, with larger property owners (50+-unit properties) accounting for almost two-thirds of these cases. What do owners and managers think of government programs, regulations, and restrictions? When asked whether their properties benefitted from six different government programs, owners and managers of most rental units (77 percent) said that their properties benefitted from none of the programs listed. Of the programs reported as assisting the properties, governmental rental subsidies (such as the Federal Government's Section 8 payments) were noted most often (18 percent), government-sponsored below-market interest-rate loans were the second most frequently reported (6 percent), and property-tax relief was the third most popular program (3 percent). The remaining three programs -- government capital grants, Federal income-tax credits, and accelerated depreciation -- were reported rarely (1 percent). Owners and managers of more than one-third of rental units reported having current and previous tenants who were Section 8 recipients. Owners and managers of about half of the rental units stated that they would accept tenants who were Section 8 voucher or certificate recipients. The reasons for not accepting Section 8 recipients included: too many regulations (33 percent), too much paperwork and time involved (also 33 percent), potential problems associated with program recipients (29 percent), and rents exceeding the Fair Market Rent (24 percent). (Multiple responses were allowed.) Owners and managers reported little difficulty operating their rental properties because of government regulations or restrictions. It should be noted that these regulations and restrictions are likely to impact most heavily during the development of rental properties, so low levels of difficulties during later lifecycle stages would be expected. In fact, with only two exceptions, owners and managers of fewer than 1 in 20 rental units responded that a regulation or restriction caused a difficulty. The two exceptions were parking restrictions (11 percent) and local property taxes (21 percent). Future Directions for Research The results discussed above, in addition to being preliminary and subject to change, represent simple (marginal) tabulations of the data. What is presented barely taps the information in the database. It will be interesting to see how responses differ between properties affordable to lower income families and more expensive properties. For example: Do maintenance policies differ? Do owners supplying affordable housing to lower income families make capital improvements less frequently? Do they offer fewer amenities? Do tenant selection, incidences of conflict, and eviction handling differ? Are owners of the affordable stock more likely to be individual investors or nonprofits? What is the likely impact of policies followed by nonprofits on other suppliers of affordable housing? The role of owners of single-family rental properties will also be investigated. For instance: Do single-family property owners differ from owners of multifamily properties? Are there differences between owning and managing affordable and more expensive single-family rental units? How important is the single-family rental stock in providing accessibility for tenant-based subsidies? For larger families? For owners' retirement plans? Do maintenance and improvement policies differ depending on the expected holding periods or recent profitability? HUD and the U.S. Census Bureau plan to explore some of these issues and hope that other researchers in the housing community will also utilize this rich data resource. Note 1. Statements in this article are based on a sample of rental units and concern the characteristics of rental units. As a result owners and managers who control numerous rental properties are given more importance or weight in the statistics reported. This is in contrast to a sample of owners and managers in which each would be given equal importance or weight. ------------------------------ 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 Stamford-Norwalk, CT: Michael W. Lackett Boston New York/New Jersey: David S. Burns New York Binghamton, NY: William Coyner Buffalo Mid-Atlantic: Frances A. Kenney Richmond Pittsburgh, PA: Thomas W. Dudash Pittsburgh Southeast: Bette L. Almand Atlanta Memphis, TN-AR-MS: Sharon L. McMahon Atlanta Midwest: Joseph P. McDonnell Chicago Rochester, MN: Dennis A. Shegos Minneapolis Southwest: Linda L. Hanratty Ft. Worth Tulsa, OK: Kenneth W. Altizer Oklahoma City Great Plains: Donald J. Gebauer Kansas City Omaha, NE-IA: James P. Laakso Omaha Rocky Mountain: James A. Coil Denver Durango, CO: George H. Antoine Denver Pacific: Robert E. Jolda San Francisco Reno, NV: Pamela J. Leong San Francisco Northwest: Pamela R. Sharpe Seattle Boise, ID: Thomas E. Aston Portland ------------------------------ NATIONAL DATA Housing Production Permits Permits for construction of new housing units decreased 1 percent in the third quarter of 1996 to a seasonally adjusted annual rate of 1,421,000 units and were 2 percent above the third quarter of 1995. One-unit permits, at 1,063,000 units, were 3 percent below the level of the previous quarter, but up 2 percent from a year earlier. Multifamily permits (5 or more units in structure), at 291,000 units, were 5 percent above the second quarter and 5 percent above the same quarter last year. Starts Construction starts of new housing units in the third quarter of 1996 totalled 1,479,000 units at a seasonally adjusted annual rate, a statistically insignificant 1 percent below the second quarter of 1996, but 4 percent higher than the third quarter last year. Single-family starts, at 1,168,000 units, were a statistically insignificant 2 percent lower than the previous quarter but 3 percent above the previous year's rate. Multifamily starts totalled 271,000 units, a statistically insignificant 6 percent above the previous quarter and a statistically insignificant 7 percent above the same quarter last year. Under Construction Housing units under construction at the end of the third quarter of 1996 were at a seasonally adjusted annual rate of 836,000 units, 1 percent higher than the previous quarter but 7 percent above the third quarter of 1995. Single-family units under construction at the end of the third quarter of 1996 stood at 599,000 units, a statistically insignificant 1 percent above the previous quarter and 10 percent above the third quarter of 1995. Multifamily units were at 212,000 units, up a statistically insignificant 2 percent from both the previous quarter and the third quarter last year. Completions Housing units completed in the third quarter of 1996, at a seasonally adjusted annual rate of 1,416,000 units, were up a statistically insignificant 2 percent and up 10 percent above the same quarter last year. Single-family completions, at 1,134,000 units, were also up a statistically insignificant 2 percent from the previous quarter and 11 percent above the rate of a year earlier. Multifamily completions, at 243,000 units, were a statistically insignificant 7 percent below the previous quarter and 6 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 373,000 units in the second quarter of 1996, which is 6 percent above the previous quarter and 12 percent above the rate a year earlier. ------------------------------ Housing Marketing Home Sales Sales of new single-family homes totalled 807,000 units at a seasonally adjusted annual rate (SAAR) in the third quarter of 1996, which is 10 percent above the previous quarter and 11 percent above the third quarter of 1995. The number of new homes for sale at the end of September 1996 numbered 336,000 units, down 6 percent from the last quarter and down a statistically insignificant 4 percent from the third quarter of 1995. At the end of September, inventories represented a 5.2-months' supply at the current sales rates, 7 percent below the previous quarter and 19 percent below the third quarter of 1995. Sales of existing single-family homes reported by the NATIONAL ASSOCIATION OF REALTORS (registered trademark), for the third quarter of 1996 totalled 4,100,000 (SAAR), down 3 percent from the third quarter's level but 2 percent above the third quarter of 1995. The number of units for sale at the end of the third quarter was 2,110,000, which is 5 percent below the previous quarter but 17 percent above the third quarter of 1995. At the end of the third quarter, there was a 6.3-months' supply of units, 2 percent below the previous quarter but 19 percent above the third quarter of 1995. Home Prices The median price of new homes during the third quarter of 1996 was $139,500, nearly equal to the previous quarter's level but 6 percent above the third quarter of 1995. The average price of new homes sold during the third quarter of 1996 was $164,900, down a statistically insignificant 1 percent from the second quarter of 1996 but up 5 percent from the same quarter a year ago. The price adjusted to represent a constant-quality house was $166,400, a statistically insignificant 1 percent above the second quarter of 1996 and up a statistically insignificant 2 percent from the third 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 third quarter of 1996 was $120,400, which is 1 percent above last quarter and 4 percent above the third quarter of 1995, according to the NATIONAL ASSOCIATION OF REALTORS (registered trademark). The average price of $148,100 was 2 percent above the previous quarter and 4 percent above the third 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 (registered trademark) composite index value for the third quarter of 1996 showed that the family earning the median income had 119.6 percent of the income needed to purchase the median-priced existing home. This figure is 2 percent below the second quarter of 1996 and 3 percent below the third quarter of 1995. This decrease is the result of a 1-percent rise in the median home price and a 12-basis-point increase in the interest rate that failed to be offset by a 0.9-percent growth in median family income during the last quarter. The fixed-rate index fell by 3 percent from the second quarter of 1996 and by 5 percent from the third quarter of 1995. The adjustable-rate index fell by 1 percent from the previous quarter and by 2 percent from the same quarter a year earlier. Apartment Absorptions There were 50,200 new, unsubsidized, unfurnished, multifamily (5 or more units in structure) rental apartments completed in the second quarter of 1996, up 15 percent from the previous quarter and up 40 percent from the second quarter of 1995. Of the apartments completed in the second quarter of 1996, 72 percent were rented within 3 months. This absorption rate is down a statistically insignificant 4 percent from both the previous quarter and the same quarter the previous year. The median asking rent for apartments completed in the second quarter was $685, which is 11 percent above the previous quarter and a statistically insignificant 1 percent higher than a year earlier. Manufactured (Mobile) Home Placements Homes placed on site ready for occupancy in the second quarter of 1996 totalled 299,000 at a seasonally adjusted annual rate, 10 percent below the level of the previous quarter and a statistically insignificant 2 percent below the second quarter of 1995. The number of homes for sale on dealers' lots at the end of the second quarter totalled 103,000 units, 14 percent above the previous quarter and 32 percent above the same quarter the previous year. The average sale price of the units sold in the second quarter was $38,500, up 5 percent from the previous quarter and 10 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 third-quarter value for the index of current market activity for single-family detached houses stood at 62, down 3 points from the second-quarter level of 65 but up 8 points from last year's third quarter. The index for future sales expectations, 64, was down 4 points from the second-quarter value but up 2 points from last year's level. Prospective buyer traffic had an index value of 46, which is 6 points below the second-quarter value but 4 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 third quarter, this index stood at 58, which is 3 points below the second-quarter level but up 6 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 8.16 percent in the third quarter, 5 basis points higher than the previous quarter and 48 basis points higher than the same quarter last year. Adjustable-rate mortgages in the third quarter were going for 5.89 percent, 8 basis points above the previous quarter and 4 basis points above the same quarter last year. Fixed-rate, 15-year mortgages, at 7.68 percent, were up 6 basis points from last quarter and 49 basis points from the same quarter last year. The FHA rate rose 17 basis points during the quarter and was 50 basis points above the same quarter last year. FHA 1-4 Family Mortgage Insurance Applications for FHA mortgage insurance on 1-4 family homes were received for 249,600 (not seasonally adjusted) properties in the third quarter of 1996, down 11 percent from the previous quarter and down 1 percent from the third quarter of 1995. Endorsements or insurance policies issued totalled 220,900, up 3 percent from the second quarter of 1996 and up 39 percent from the third quarter of 1995. Endorsements for refinancing were 23,700, down 50 percent from the second quarter of 1996 and up 73 percent from a year earlier. PMI and VA Activity Private mortgage insurers issued 286,300 policies or certificates of insurance on conventional mortgage loans during the third quarter of 1996, down 4 percent from the second quarter and unchanged from the third quarter of 1995; these numbers are not seasonally adjusted. The U.S. Department of Veterans Affairs reported the issuance of mortgage loan guaranties for 78,600 single-family properties in the third quarter of 1996, down 15 percent from the previous quarter but up 20 percent from the third quarter of 1995. Mortgage Originations by Loan Type, 1-4 Family Units The total value of mortgage originations for 1-4 family homes was $247.6 billion in the second quarter of 1996, up 21 percent from the first quarter of 1996. All four loan types increased in volume during the quarter: uninsured mortgage volume grew 23 percent; privately insured mortgages increased 21 percent; FHA-insured mortgages increased 11 percent; and VA-guarantied mortgages rose 8 percent. The overall increase from the second quarter of 1995 was 76 percent. FHA mortgages increased 88 percent, uninsured mortgages increased 83 percent, VA-guarantied mortgages increased 80 percent, and privately insured mortgages rose 42 percent. Market shares changed very little during the second quarter of 1996, or from the previous year. Residential Mortgage Originations by Building Type Residential mortgage originations totalled $260 billion in the second quarter of 1996, up 20 percent from the first quarter of 1995 and up 75 percent from the second quarter of 1995, and nearly identical to the single-family mortgage pattern. The financing volume for multifamily (5+) units totalled $12.4 billion in the second quarter, up 11 percent from the previous quarter and up 46 percent from the second quarter of 1995. Mortgage Originations by Lender Type, 1-4 Family Units Commercial banks with a volume of $74.3 billion and a market share of 30 percent and mutual savings banks with a volume of $8.7 billion and a market share of 3.5 percent show increases from the first quarter of 1996 and the second quarter of 1995. The increases were in both volume and market shares. However, the second quarter data is based on a newly introduced sample design that calls into question any comparisons of current data with earlier data. More data from the newly introduced sample design needs to be collected before the series can be used with confidence for time-to-time comparisons. Volume data for other lender types is unaffected; however, comparisons of their market share data across time are affected by this question of comparability. Mortgage companies increased their volumes during the second quarter of 1996 to $128.4 billion, an 8-percent increase from the first quarter of 1995 and a 60-percent gain over the second quarter of 1995. Their market share is now estimated to be 51.9 percent and they continue to dominate the market. Savings and loans originated $35.1 billion in mortgages, a 24-percent increase from the first quarter of 1996 and a 57-percent increase from the second quarter of 1995. Their market share in the second quarter is now estimated to be 14.2 percent. Volumes and market shares for other lenders continue to be quite small. ------------------------------ Delinquencies and Foreclosures Total delinquencies were at 4.35 percent at the end of the second quarter of 1996, 3 percent below the first quarter but up 5 percent from the second quarter of 1995. Ninety-day delinquencies were at 0.63 percent, down 10 percent from the first quarter of 1996 and down 18 percent from the second quarter of 1995. During the second quarter of 1996, 0.34 percent of loans entered foreclosure, down 11 percent from the previous quarter but up 3 percent from the second quarter of 1995. ------------------------------ Housing Investment Residential Fixed Investment and Gross Domestic Product Residential Fixed Investment (RFI) for the third quarter of 1996 was $311.7 billion, down 1 percent from the second quarter of 1996 but up 7 percent from the third quarter of 1995. As a percentage of the Gross Domestic Product, RFI was 4.1 percent, down 2 percent from the previous quarter but up 3 percent from a year ago. Housing Inventory Housing Stock The estimate of the total housing stock as of the third quarter of 1996, 114,534,000 units, was a statistically insignificant 0.3 percent above the second quarter of 1996 and 1.8 percent above last year. The number of occupied units was unchanged from last quarter but was 1.2 percent above the same quarter last year. Owner-occupied homes showed a statistically insignificant 0.2-percent increase over the second quarter of 1996 and a 2.2-percent increase from the third quarter of 1995. Rentals declined a statistically insignificant 0.3 percent from last quarter and declined 0.4 percent from last year. Vacant units rose 2.2 percent from last quarter and 6 percent from the previous year. Vacancy Rates The 1996 third-quarter national rental vacancy rate, at 8.0 percent, was up 0.2 percentage point from last quarter and up 0.3 percentage point from last year. Both changes were statistically insignificant. The homeowner vacancy rate, at 1.7 percent, was up 0.2 percentage point from both last quarter and last year. Homeownership Rates The national homeownership rate was 65.6 percent in the third quarter of 1996, up a statistically insignificant 0.2 percentage point from the second quarter and up 0.6 percentage point from the third quarter of 1995. The third-quarter rate is at a 15-year high. The homeownership rate for minority households increased a statistically insignificant 0.6 percentage point from the second quarter and 1.5 percentage points from last year. The rate for young households of 57.8-percent homeownership was down 1 percentage point from last quarter's rate and a statistically insignificant 0.1 percentage point from last year's. ------------------------------ 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 Nonagricultural wage and salary employment in New England increased by 70,900 jobs from August 1995 to August 1996, a gain of 1.1 percent. Vermont had the largest rate of growth, a 1.6 percent increase, while Massachusetts and Connecticut had increases of 1.3 percent and 1.1 percent, respectively. Most of the growth occurred in the retail trade and business and health services sectors. Massachusetts had the largest job gain, 41,600 jobs, with the services sector accounting for 82 percent of the increase. As of August 1996, the unemployment rates in all New England States except Maine and Rhode Island were below the national average. New Hampshire had the lowest unemployment rate, 3.8 percent. Rhode Island's unemployment rate declined from 7.1 percent to 5.2 percent in the past year. Boston's hotel and tourist business remains vibrant. The hotel industry ended 1995 with an occupancy rate of almost 78 percent, among the highest in the Nation. Reflecting the strong market, the Omni Parker House, located in the heart of downtown Boston, is scheduled for a $45 million renovation. One of the largest renovation projects in Boston this decade, improvements to the 540-room hotel will be completed by June 1998. For the first 9 months of this year, 27,295 single-family homes were authorized by building permits in New England, a 6-percent increase over the same period in 1995. The biggest increases were in Maine, 15 percent, and Rhode Island, 10 percent. The Boston, Burlington, Hartford, Portland, and Portsmouth areas all reported increases in activity from 1 year ago. Multifamily housing activity, at 2,554 units, was down about 12 percent from the same period a year ago. As of the third quarter of 1996, the annual rate of existing home sales in Massachusetts was up 21 percent from the third quarter of 1995. Consumer confidence has returned to the area, and improvement in local economies has spurred activity in the sales market. Rhode Island (10.7 percent) also recorded a strong increase in existing home sales. In Connecticut existing home sales were down 5.3 percent. During the third quarter, the median sales price in the Boston area was $195,300, a 6.6-percent gain from the same quarter a year ago. Reflecting improvement in the Hartford housing market, the median sales price was $142,500 during the third quarter, a 7.2-percent increase. New England rental markets continue to tighten as a result of the improving economy and low levels of apartment construction. Absorption of new rental housing in the Boston area has been outstanding. Vacancy rates in apartment developments in the Route 128 region of Massachusetts are 2 percent or less. Rents in the Boston area have increased between 2 to 4 percent since the Fall of 1995. HUD is currently reviewing an application for 280 units of rental housing in Waltham, and several other rental housing developments are in the planning stages within the greater Boston area. Spotlight on Stamford-Norwalk, Connecticut The Stamford-Norwalk metropolitan area, located in lower Fairfield County adjacent to Westchester County, New York, was for many years primarily a suburban bedroom community. However, the past two decades have seen much corporate migration from New York City, establishing a vibrant economic base. Employment increased by about 3,600 jobs annually from 1992 to 1995 and by about 4,800 jobs for the 12 months ending in August 1996. All of the job gains have been in the services sector. Unemployment declined from 5.7 percent in July 1992 to 3 percent in August 1996. This is the lowest unemployment rate in Connecticut and among the lowest in the Nation. The Stamford-Norwalk commercial real estate market has been very strong in 1996, particularly in the third quarter. Leasing activity and absorption have improved dramatically, and the vacancy rate has declined from 25 percent in 1992 to less than 15 percent currently. The vacancy rate in Stamford's central business district went from 17 percent in the third quarter of 1995 to 10 percent in the third quarter of 1996. Single-family building activity in the Stamford-Norwalk area has steadily increased this decade from about 180 units in 1990 to an average of 450 units annually in 1994 and 1995. In the first 9 months of 1996, permits were up 8 percent (340 units) over 1995 levels for the comparable period. In the first 8 months of 1996, sales of single-family homes in the Stamford-Norwalk area totalled 3,331, which is 10 percent above the comparable period in 1995. Sales prices are some of the highest in the Nation, consistent with the high median family income ($82,900 in 1996). The median sales price for the metropolitan area as of the second quarter of 1996 was $349,000. However, there is significant variation in sales prices within the area: In Norwalk the median sales price was $195,000, in Stamford it was $265,000, and in the affluent suburban remainder of the metropolitan area, it was nearly $450,000. The Stamford-Norwalk rental housing market has tightened as a result of the limited apartment construction in recent years, with vacancy rates typically in the low single digits. Rents of well-located properties are typically $800 to $1,000 for one-bedroom apartments and $1,100 to $1,300 for two-bedroom apartments. ------------------------------ NEW YORK/NEW JERSEY Job growth in New York and New Jersey continues to lag behind the rest of the country. Seasonally adjusted employment increased a slight 0.8 percent between August 1995 and August 1996. Modest employment gains in the services, construction, and trade sectors were partially offset by the continued decline in manufacturing employment. New York State's unemployment rate was 6.1 percent in August 1996, down from 6.4 percent a year earlier. In New Jersey the unemployment rate was also 6.1 percent, down from 6.5 percent in August 1995. New York City employment increased by about 31,000 jobs, or 1.1 percent, between August 1995 and August 1996. The unemployment rate in August 1996 was 8.5 percent, up from 8.3 percent a year ago. The city's economy has been significantly aided by an increase of 6,500 jobs in the securities industry during the first 8 months of 1996, where the average wage in 1995 was $127,800. Sales prices for residential real estate in Manhattan below 96th Street have continued to surge, rising 11 percent in the past 12 months as of the third quarter, according to the quarterly report by real estate broker Halstead Property Company. Prices on Park Avenue, Fifth Avenue, and Central Park West rose 17 percent during this period. Both levels are the highest since Halstead began surveying apartments below 96th Street in 1987. The commercial real estate market in New York City appears headed for recovery, although the late 1990s are not likely to be as buoyant as the 1980s. The vacancy rate for Class A office space in midtown Manhattan has fallen to 9.3 percent as of August 1996. The Durst Organization has begun demolition in preparation for the construction of a 48-story office tower in Times Square. This building, which received more than $10 million in tax abatements, will be the first major office tower built in Manhattan in the 1990s. Rents for Class A office space in Midtown are approximately $39 a square foot annually. Many building industry executives believe that these rents have to rise to the mid-$40 level before developers will be tempted to build without some form of subsidy. Sales of commercial property also have picked up. In 1994 there were 39 sales of major commercial buildings in Manhattan for a total value of $1.2 billion. In 1995 there were 54 such sales, totalling $1.8 billion, with foreign sources accounting for $1 billion of that total. It is anticipated that 1996 sales will be close to $2.8 billion. The downtown area of Brooklyn will get its first large hotel since the 1930s as part of a $320 million 32-story complex called Renaissance Plaza. A 385-room Marriott Hotel will occupy the first 7 floors, and office space, which has been substantially preleased, will occupy the remaining floors. This complex is scheduled to open in the Summer of 1998. In Queens the Mattone Group has been selected as the developer of an $80 million office-retail-entertainment complex in central Jamaica. An 11-screen movie theater bearing the name of Magic Johnson has been announced as the anchor tenant. The site will also include a number of national brand retailers. Groundbreaking recently took place for the HUD-insured 358-unit development in Holtsville, Long Island, known as Spruce Pond Country Club Apartments. Twenty percent of the units will have rents affordable to moderate-income families as required by the town of Islip in which Holtsville is situated. The monthly rent for the moderate-income units will not exceed $754. The market-rate units will rent for $950 for a one-bedroom unit and $1,125 for a two-bedroom unit. In New York State, single-family building permits in the first 9 months of 1996 (15,640 units) were up a slight 1 percent from the comparable 1995 period. However, multifamily housing activity in the first 9 months (12,015 units) showed a dramatic 246-percent increase, the highest level in the past 7 years. The Buffalo, Nassau-Suffolk, Syracuse, and New York City metropolitan areas all reported substantial increases in multifamily activity. The New York City metropolitan area accounted for slightly more than half of the State's activity (6,044 units) due in large part to the strong rental market in Manhattan. In New Jersey single-family permit activity (14,654 units) was up 4.7 percent in the first 9 months of 1996 and multifamily activity was down 18 percent to 2,276 units. As of the third quarter of 1996, the seasonally adjusted annual sales of existing homes in New York State had increased to 158,400, up 7 percent over third-quarter 1995 levels. In New Jersey sales volume was up almost 6 percent to 148,800 homes annually. Spotlight on Binghamton, New York The Binghamton metropolitan area (Broome and Tioga Counties) is located in the southern tier of the State, just north of Pennsylvania. The metropolitan area has lost population since 1990, decreasing from 264,497 to 257,403 persons, with most of the loss in Broome County. In the 12 months ending August 1996, total employment in the metropolitan area declined from 110,300 to 109,100 jobs. Losses in manufacturing, wholesale and retail trade, and government were offset somewhat by a slight increase in services employment. During the past 12 months, however, the unemployment rate in the area declined from 4.9 to 3.9 percent, primarily due to outmigration and the resulting reduction of the labor force. Like other areas in Upstate New York, Binghamton has lost manufacturing jobs, which declined by more than 2,000 a year between 1988 and 1994. IBM Corporation is the largest employer with approximately 5,500 workers currently. Since the mid-1980s when IBM employed about 12,000 persons in the area, its presence has been substantially reduced as a result of corporate restructuring and the closure of its Glendale Research and Development Laboratory in 1992. The New York State government has proposed reusing the Glendale facility for data processing and other operations, relocating up to 1,100 jobs from Albany and New York City. Another IBM facility is now owned by Lockheed-Martin, which currently employs 3,000 persons, most of whom are former IBM employees. In July 1995 it was announced that GM-Hughes Link Training Division, a manufacturer of flight simulators for the defense industry, would be closing, resulting in the elimination of 1,000 jobs. The Binghamton economy, however, is diversifying. The area is home to the State University of New York at Binghamton, one of four major educational centers within the State system, with 12,000 students and 3,000 faculty and staff. Residential building permit data mirror the economic and demographic declines experienced by the Binghamton area since 1990. In the 1990s construction levels have been approximately half those of the 1980s. Single-family permit activity has steadily declined from 428 units in 1990 to 177 units in 1995. In the first 9 months of 1996, permits were issued for only 29 single-family units. The limited activity has been confined primarily to the western suburbs of Broome County, where homes are priced in the $140,000 to $250,000 range. The market for existing homes in the Binghamton area also is quite weak. Local sources estimate that the approximately 2,300 homes on the market constitute about a 2-year supply at the current pace of sales. According to the Broome County Association of Realtors (registered trademark), the average sales price of an existing single-family home in the metropolitan area has declined by almost 14 percent since 1990, from $92,700 to $80,000. ------------------------------ MID-ATLANTIC The Mid-Atlantic economy, continuing to feel the effects of military and Federal downsizing plus constrictions in several key industries, is growing at about half the national rate. Employment gains of less than 1 percent in the first 8 months of 1996 characterize the major market areas of Pittsburgh; Baltimore; Washington, D.C.; and Hampton Roads, Virginia, with the Philadelphia area reporting a slight decline. The Maryland and Virginia suburbs of Washington, D.C., are actively competing for jobs using economic development incentives. So far in 1996, employment in the Virginia suburbs has grown by 2.2 percent, triple that of the Maryland suburbs, due to gains in high-technology, engineering, and management services in computer-related fields. Oracle Corporation, the world's second largest software company, announced a $45 million expansion in Northern Virginia that will bring 3,000 jobs over the next 8 years to a new headquarters facility in Reston. This decision was based, in part, on low corporate tax rates and tax-related incentives that could exceed $3 million if job creation goals are met. Maryland has just started to give economic incentives to keep existing employers and attract new firms. City, county, and State incentives were instrumental in retaining Northrop Grumman Corporation (7,200 employees) and partially financed the company's recent expansion in Anne Arundel County. State incentives were also used to attract the consolidation of 500 headquarters employees of the Federal Emergency Management Agency (FEMA) in suburban Maryland. In Delaware Saturn recently announced that the GM plant at Wilmington had been selected as the production facility for the company's new midsize automobile. The selection of the Wilmington plant will save 2,400 jobs that had been slated for elimination. Single-family construction in the Mid-Atlantic region, as measured by building permits, was up a modest 3 percent in the first 9 months of this year. Virginia reported the largest percentage gain of 5.4 percent to 27,800 units. The economic gains in Northern Virginia have resulted in increased single-family construction activity this year, with virtually all counties outside the Washington Beltway showing gains. The three counties (Fairfax, Loudoun, and Prince William) that account for nearly 75 percent of all new single-family homes in Northern Virginia saw increases in permit activity of 10 to 25 percent. Single-family housing production in Hampton Roads (5,147 units) is up 8 percent in 1996 over a very lackluster 1995. In the Philadelphia area, single-family construction (9,296 units) is up 3 percent this year. Existing home sales are holding relatively steady in all major markets. In the Baltimore area, the strongest sales gains were reported in Carroll and Baltimore counties. In the Washington, D.C., area, existing home sales in the first 8 months of 1996 were up a modest 6 percent, led by gains in some Northern Virginia submarkets, notably the Dulles corridor where sales increased 11 percent, and by strong performance on the Maryland side as well. However, with the downturn in sales in August, many local sources think 1996 will end at or below sluggish 1995 volumes. The Mid-Atlantic region's major metropolitan rental markets continue to show steady improvement, with multifamily housing activity steadily increasing. Through the third quarter of 1996, building permits were issued for 15,179 units, up almost 15 percent over 1995's volume for the comparable period and about equal to the total volume in 1994. At the current pace, 1996 could be the biggest year for multifamily construction since 1990. Pennsylvania (3,735 units) and Virginia (8,538) both showed strong gains of 33 and 25 percent, respectively, as a result of increased activity in the Philadelphia and Northern Virginia markets. In the Philadelphia area, apartment vacancy rates dropped below 7 percent and are less than 5 percent in the Center City. Two-bedroom, two-bath units in the Center City are renting for $1,323 per month, while similar units in outlying areas of Philadelphia command rents averaging $895. In the Baltimore area, the overall market is balanced. Rental vacancies hover in the 7- to 8-percent range in Hampton Roads, where the market is improving from the double-digit vacancy rate at the start of this decade. The demolition of 2,000 units of older apartments in Norfolk, Ocean View, and Newport News has helped the rental market. Spotlight on Pittsburgh, Pennsylvania Employment in the Pittsburgh metropolitan area during the 12 months ending in August increased 0.7 percent compared with the same period ending in August 1995. The 1995 job gain of 1.1 percent was the highest annual rate since 1990. The health-services sector, a major industry with 117,000 jobs, bolstered the local economy through the past decade, but has declined in the past 2 years due to hospital mergers and layoffs. Sony Industries, which moved into the area in the late 1980s, grew at a slow pace through the recession and is now expected to reach the forecast level of 2,000 jobs by the end of 1997. Sony is expanding its American Video Glass subsidiary by 500 workers next April. The unemployment rate for the Pittsburgh area remains below the State and national levels, dropping from 5.6 percent in August 1995 to 4.8 percent as of August 1996. Revitalization of downtown Pittsburgh continues with the relocation of Blue Cross and Blue Shield to the old Lazarus Department Store. This move will add 1,000 employees to the downtown job base. Other development projects include a $262 million expansion of the Lawrence Convention Center, a $200 million baseball park, a new $78 million Lazarus Department Store, and an $80 million Theater Square project. The Pittsburgh sales housing market remains relatively healthy. Home construction continued at about the same pace as 1995, with 3,742 units in the first 9 months of 1996. An increasing share of development is in the outlying counties, particularly in Westmoreland and Butler counties, which are experiencing rapid job growth. Strong markets exist in the lower tax suburban-fringe areas of Peters Township (Washington County), Cranberry Township (Butler County), and Murrysville (Westmoreland County). New home prices in these areas are primarily in the $130,000 to $150,000 range. Higher priced homes from $180,000 to $325,000 are popular throughout the market area. Three signature golf course communities are under development in Allegheny County, with homes priced at $325,000 and above. High-priced townhouses and patio homes are also popular in the planned communities appealing to move-up buyers nearing retirement. Existing home sales were up nearly 8 percent in the first 9 months of this year compared with the same period in 1995. The median sales price of an existing home is up 2.7 percent to $86,600. Allegheny County, recognizing shifting market preferences to outlying areas, is developing a 2-year property-tax abatement program for buyers of new and substantially renovated homes to stem the flow of owners to outlying areas. The Pittsburgh area rental market is balanced with an overall vacancy rate of about 5 percent. Although some apartment developments offer reduced security deposits and rent concessions, discounts are no longer widespread in the marketplace. Multifamily construction increased 35 percent in the first 9 months of this year, but with only 585 units is still very low. ------------------------------ SOUTHEAST/CARIBBEAN Through the middle of the third quarter, total employment in the Southeast region continued to grow at a faster rate than the Nation as a whole. While national employment increased by 1.8 percent between August 1995 and August 1996, employment in the eight States and Puerto Rico increased by 2.4 percent, due partly to substantial gains in Georgia. Georgia experienced a growth rate of 4.6 percent, the highest in the region. The unemployment rate for August was below the national rate of 5.1 percent in all areas except Mississippi, South Carolina, and Puerto Rico. For the 8 States in the Southeast, nonagricultural employment increased by 458,000 jobs from August 1995 to August 1996. This figure included 147,500 additional jobs in the wholesale and retail trade sector and 230,100 new jobs in services. Manufacturing employment declined by 75,500 jobs during the period, many of which were in the textile industry. In the Atlanta area, 400 workers lost their jobs when Kuppenheimer closed a suit plant in October. Fieldcrest Cannon is closing 2 factories in Eden, North Carolina, eliminating 750 jobs. Almost 2,500 jobs have been lost in the Greenville, South Carolina, area over the past year as the textile and garment industry continues to suffer. Important new job announcements for the region included the building of a $200 million tourist development in Sevier County, Tennessee, which will generate approximately 1,500 jobs; the construction of a window manufacturing plant in Barnwell County, South Carolina, where EFCO Corporation will employ up to 1,000 workers; and the opening of a customer service facility in Tampa, where Capital One Financial Corporation will employ 1,000 workers. Single-family home construction in the region, as measured by building permits, showed continued strength during the third quarter. During the first 9 months of 1996, permits were issued for 230,287 single-family units, a 9.5-percent increase over the comparable 1995 period. At the current pace, the Southeast region could see its best year in single-family activity thus far in the 1990s. All States showed gains in activity, with increases ranging from 4.9 percent in Florida to 16.6 percent in Alabama. In Atlanta a total of 29,318 single-family homes were permitted in the metropolitan area in the first 9 months of 1996. At this pace activity is likely to surpass the previous record year of 1986. Completion of the Olympic Games may offer some benefit to builders who saw profit margins squeezed because of competition for materials and labor from Olympics-related construction. Two of the biggest percentage increases in single-family volume during the year were recorded by Florida metropolitan areas. Fort Walton's volume increased by 33 percent, or 1,128 units, and Pensacola's rose by 39 percent, from 1,828 to 2,549 units. Recent military realignments have resulted in increases in military strength levels in both areas. Excluding Georgia, existing home sales as of the third quarter of 1996 were up 3.5 percent over the second quarter of 1995 in the Southeast. The sales volume in Puerto Rico and the Virgin Islands, as measured by the number of FHA-insured loans from January through September 1996, increased from 16,157 to 18,838, or 16.5 percent over the comparable period a year ago. Multifamily building permit activity in the Southeast (71,980 units) was up 4 percent for the first 9 months of the year compared with the same period in 1995. At the current pace, 1996 may finish as the second best year of the 1990s for multifamily construction. In Florida and Georgia, activity was down a modest 5 percent from very strong 1995 levels. Permit activity also dropped in Alabama and Mississippi, and remained unchanged in Kentucky. In Birmingham permits dropped from 1,655 units in 1995 to 683 in 1996, a reflection of increasing vacancy rates as a result of excess multifamily construction during the past 2 years. North Carolina (9,875 units) and South Carolina (4,445 units) reported substantial increases of 12 and 37 percent, respectively. Tennessee (9,903 units) led the region with the largest percentage gain, 69 percent. The Nashville area provided a substantial part of the increase, with 4,469 units permitted during the first 9 months of 1996, more than triple the figure last year at this time, and more than 1994 and 1995 combined. According to the SPL Corporation, a local market research company, there are 5,200 multifamily units under construction in Nashville, 3,000 of which will be completed in 1996. SPL is now warning of potential overbuilding. Although multifamily permit activity was down in Florida overall, several major markets had large increases. Jacksonville was up 474 percent to 3,518 units, Fort Lauderdale rose 43 percent, and Sarasota-Bradenton jumped 215 percent. In the Jacksonville metropolitan area, there are now an estimated 6,000 multifamily rental units under construction, enough to raise concerns about such a large number of new units coming on the market in a short period of time. Multifamily units permitted in the Atlanta metropolitan area declined by 35 percent from January through August 1996 compared with the same period in 1995. This reduced pace of development may keep the market from becoming saturated after a high volume of construction in 1995. The north Fulton County submarket already is overbuilt, and rent concessions have begun to appear for the first time in several years. As of July 4,500 units were in initial lease-up, and more units were under construction. The most active multifamily housing market in North Carolina is Charlotte, where the current rate of production is expected to result in substantially higher rental housing vacancy rates by early next year. Spotlight on Memphis, Tennessee Memphis is one of the largest transportation and distribution centers in the Nation. The metropolitan area has the second largest inland port on the Mississippi River, a number of major highways, and a large hub airport. The airport was the top cargo airport in the world in 1995, a title that it has held for 4 years due largely to Federal Express activity. Planned job expansions should further solidify the area's importance as a transportation and distribution hub. Federal Express, the area's largest employer with a workforce of approximately 24,000, recently announced plans to build a technology center that will employ 1,300 persons. United Parcel Service plans to build a new parcel sorting facility near the Memphis Airport that is expected to add 1,800 workers. Construction has begun on Ingram Micro's new distribution center, which is expected to add as many as 700 jobs. The area's growing economy has also encouraged strong construction activity. The Memphis Area Chamber of Commerce estimates that Memphis currently ranks fifth in the Nation for industrial construction and third in the Nation for office construction by square footage. Memphis' first comprehensive economic development plan that covers the metropolitan area, "Memphis 2005," was formulated earlier this year. The plan's goal of adding 10,000 jobs per year has been surpassed in the most recent 12-month period, as civilian employment in Shelby County has increased by more than 14,000 jobs. The area's unemployment rate of 4.1 percent is well below the national rate. The population of the metropolitan area is estimated to be close to 1.1 million persons, a 7-percent increase since 1990. Some outlying areas have had high rates of growth since 1990, including DeSoto County, Mississippi, and Tipton County, Tennessee. In Shelby County, the core county of the metropolitan area, the population of Collierville has increased by more than 33 percent since 1990. The number of single-family building permits in the metropolitan area totalled 4,777 for the first 9 months of 1996, a drop of 11 percent from the comparable 1995 period. Sales have remained strong in the Memphis area. Chandler & Chandler, a Memphis real estate data firm, indicates that sales of new and existing homes totalled 14,360 through the third quarter of 1996, up from the comparable period in 1995. The Multiple Listing Service of the Memphis Area Association of Realtors (registered trademark) (covering Fayette, Shelby, and Tipton Counties in Tennessee) reported sales of 8,824 homes through September 1996, 60 percent of which were in Shelby County. The median sales price as of the third quarter was up 3 percent over the third quarter 1995 to $94,900. Memphis' rental market is sound, although the recent increase in construction may test its depth. The SPL Corporation of Memphis reported an overall apartment occupancy rate of 94 percent at the end of the third quarter. From 1990 through 1994, permits were issued for 440 units annually as the market worked off excess supplies from overbuilding in the 1980s. With the steady growth in the area, the market rebounded in 1995. In the first 9 months of 1996, permits were issued for 2,807 multifamily units, more than double the 1,392 units for the same period in 1995. Two office buildings in downtown Memphis that were converted to 358 apartments in 1995 rented up rapidly. The Memphis Housing Authority recently received funding from HUD to demolish 422 units of substandard public housing. HUD is providing funds to relocate almost 1,000 families living in units intended for renovation or demolition. The Housing Authority has requested approval to raze another 832 public housing units. ------------------------------ MIDWEST Employment growth in the Midwest during the third quarter of 1996 continued the moderate trend of the first 6 months. In the 12 months ending August 1996, the region added 353,000 new jobs. The strongest job gains were in business and health services, retail trade, and construction. The unemployment rate as of August was less than 5 percent in all States of the region except Illinois, where it was 5.3 percent. Minnesota, where unemployment has remained under 4 percent for the past 2 years, continues to report shortages of skilled and unskilled labor. Illinois and Michigan led the region in employment growth, with 95,000 and 87,000 new jobs, respectively, during the 12 months ending in August 1996. In the Chicago area, the first new commuter railroad since Prohibition made its inaugural run from suburban Lake County to downtown Chicago. As a result of the $131 million North Central line, the Pullman plant has reopened and hired 350 workers to produce rail cars for the line. In north suburban Detroit, hiring has been brisk at the $350 million Somerset Shopping Mall, where 3,500 retail jobs are being added. Minneapolis-St. Paul area construction employment, at 64,000 jobs, was at a record high in the third quarter due to residential, commercial, and road construction. The Naval Air Warfare Center in Indianapolis has been turned over to Hughes Electronics by the U.S. Department of Defense in the largest privatization of a military institution in U.S. history. Hughes will retain all 2,550 civilian employees, who generate a $150 million annual payroll, and relocate another 730 research and development employees from California to this facility. Single-family production strengthened during the third quarter of 1996, boosted by low mortgage rates and a healthy economy. Building permits were issued for 148,888 single-family units in the first 9 months of 1996 compared with 133,415 units for the same period last year, an increase of 11.6 percent. All States and the largest metropolitan areas in the region reported gains. Illinois, Michigan, and Ohio led the region, each with more than 28,000 units. Indiana and Minnesota had the largest percentage gains, with increases of 15 and 16 percent, respectively. The region's healthy economy helped boost the annual rate of existing home sales above 871,000 as of the third quarter of 1996, the second highest volume in the past 15 years. Minnesota and Ohio had gains of 11 and 5.8 percent, respectively. Home sales in Michigan were up 3.9 percent as of the third quarter. Homebuilding in the Minneapolis-St.Paul area remained strong in the first 8 months of 1996, with permits for new homes up 18 percent over last year. The Parade of Homes Fall Showcase in September was the largest ever, with 744 model homes in 132 communities throughout the Twin Cities area. Following the high turnout of prospective buyers, the 342 participating builders were upbeat about sales for the remainder of 1996. In Minneapolis' inner-city neighborhoods, Norwest Corporation boosted lending 72 percent over the past several years, making 1,053 home mortgage loans in 1995 compared with 612 in 1993. Chicago area sales of new homes were down in the third quarter compared with last year, but builders still expect a relatively strong 1996, with 20,000 to 21,000 sales for the metropolitan area. Sales of condominiums in the city of Chicago continue to do well, up 22 percent in the first 6 months of 1996 over last year. The Cleveland Homebuilders Association also reported that buyer traffic exceeded expectations at the first annual Scattered-Site Parade of Homes in August. Cleveland's Bicentennial Village neighborhood is marking the city's 200th birthday by renovating 200 of 400 homes in the area and adding 49 new homes. Cleveland donated the vacant lots, while groups such as Habitat for Humanity and the Fairfax Renaissance Development Corporation have organized the redevelopment. More than $12.6 million will be invested in the area, mostly from nongovernmental sources. National City Bank, also part of the nonprofit neighborhood development corporation, is offering mortgages with below-market interest rates. Revitalization of inner-city areas is progressing well in Detroit and Milwaukee. Construction has begun near downtown Detroit on a $39 million complex of townhouses, apartments, and retail space planned for the city during the next 5 years. The developer is building homes priced up to $112,000, and plans to build 180 homes in the $55,000 to $65,000 price range for families with incomes of $25,000 to $30,000. In southwest Detroit construction will start in early 1997, using State and city funds, on a $5 million, 60-home development called Newberry Estates. In Milwaukee CityHomes is helping to revitalize one of the city's most distressed neighborhoods with new affordable housing. The project, being developed with $845,000 in HUD community development funds, is off to a strong start with 32 of 42 lots sold in 1996. The builder reported strong market response to the 20 completed single-family detached homes priced between $75,000 and $80,000. Rental markets remain in good condition throughout the region, with occupancy in the 94- to 97-percent range. Building permits were issued for 42,207 multifamily housing units in the first 9 months of 1996, slightly ahead of last year's 41,575 units, and the second highest level since 1990. Activity in Michigan increased 28 percent, followed by Wisconsin with a gain of 9 percent. Indiana and Minnesota recorded declines of 12 and 22 percent, respectively. Chicago has maintained high apartment occupancy of 95 to 97 percent for the past 2 years, according to a July 1996 survey of 101,000 rental units in the metropolitan area. In suburban Lake and Du Page Counties, absorption has held steady at 20 to 22 units a month in 3 new developments, with rents of $850 to $900 for a 1-bedroom unit, $975 to $1,150 for a 2-bedroom dwelling, and $1,350 to $1,550 for a 3-bedroom unit. In the western suburbs, 2,600 units with similar rents are under construction and are expected to rent up at about the same pace. The increased demand for housing in downtown Chicago is spurring the conversion of older office buildings to condominiums and luxury rental apartments, particularly in the South Loop area. The Chicago HUD office is reviewing a proposal to convert the Kodak building in the city's South Loop to 116 loft units, the first FHA mortgage insurance application for rental housing in the area since the mid-1980s. In Indianapolis apartment absorption in several new developments is running at about 20 units a month. Apartment occupancy in western Michigan markets is about 94 percent, and several new projects in the Grand Rapids area are renting 12 to 15 units monthly. Detroit area developers reported leasing of new apartments has been better than expected near Chrysler Corporation's headquarters in suburban Oakland County. A Cincinnati area developer reported new units in north Hamilton County are filling quickly due to strong job growth. In downtown Cleveland the FHA-insured Crittenden Court, the first new apartment complex in the area in 25 years, opened to strong market response, with 187 of 208 units leased in the first 9 months of 1996. Spotlight on Rochester, Minnesota Rochester consistently scores well in livability indexes published in national magazines. One publication listed the metropolitan area as the Nation's healthiest place in 1996. The population in the Rochester metropolitan area is estimated currently to be about 114,000, a 7-percent gain since 1990. Until the early 1990s, employment growth in the metropolitan area had been fairly rapid, stimulated by job increases at the Mayo Clinic, its associated hospitals, and IBM. However, from 1993 through much of 1995, cutbacks in health services and IBM brought growth to a halt. During the 12 months ending in August 1996, employment growth has resumed at a healthy 3.1 percent, with business, personal, and health services providing the lion's share of new jobs. The unemployment rate as of August 1996 was 2.5 percent, one of the lowest in the Midwest. Prospects for job gains in the metropolitan area are favorable. Local estimates of employment growth range from 2 to 4 percent annually during the next 5 years. Medical and biotechnology industries, personal and business services, education, and fabricated metal manufacturing are expected to be the leading sources of growth. Former IBM executives have been starting new firms with the aid of a local nonprofit economic development group, while a patient of the Mayo Clinic bequeathed a $128 million estate to the Mayo Foundation for research, education, and patient care. The Rochester area's economic slowdown in the early 1990s had an impact on demographic trends and housing market conditions. In contrast to the steady growth of the 1970s and 1980s, from 1993 through 1995, small declines in population and households occurred in the metropolitan area. The rental housing vacancy rate rose above 9 percent in September 1994. The average sales price of existing homes declined about 2 percent in the first 6 months of 1994. Market conditions began to improve in the past year, however. Home prices recovered to an average of $98,900 in the first 6 months of 1996. A recent $2.5 million program for first-time home-buyers, sponsored by the Olmstead County Housing and Redevelopment Authority, was quickly oversubscribed. The program was able to provide downpayment assistance and below-market-interest-rate financing to 34 low-income families. Residential construction activity also is starting to recover. Building permits fell from more than 1,000 units annually from 1990 to 1992 to about one-half that number annually the following 3 years. For the first 9 months of 1996, activity was up 61 percent to 535 units. The availability of affordable rental housing is a local concern, in part because of the recent influx of refugees and other immigrants from Southeast Asia, Somalia, and Bosnia. To respond to this need, a 25-unit tax-credit project was completed this year, and several more projects with about 125 tax-credit units are under development. HUD has insured two 87-unit cooperative projects for the elderly in Rochester. Strong market response to the first project, completed in July 1993, led to development of the second, which is scheduled for completion in the Spring of 1997. ------------------------------ SOUTHWEST The Southwest region showed a solid 3-percent gain in nonagricultural employment for the 12 months ending in August 1996. Manufacturing exhibited a small increase, although services and trade continued to have the biggest gains. New Mexico had the largest employment percentage increase at 4.2 percent, followed by Texas at 3.2 percent, with Arkansas, Louisiana, and Oklahoma registering gains less than 3 percent. The seasonally adjusted unemployment rate in Texas as of August 1996 was 5.6 percent, the lowest figure since August 1984. The services sector accounted for 83 percent of the 251,500 jobs added in the 12 months ending August 1996. Although Texas continues to outpace the national rate of growth, the annual rate of employment growth slowed from a peak of 4.5 percent in early 1995 to approximately 3 percent in June 1996. In Arkansas developer interest in land around interchanges on the new U.S. Highway 71 bypass in the fast-growing Springdale-Rogers-Fayetteville area is pushing up prices. Relocation of the highway is expected to be completed by early 1999. The Highway 71 bypass as well as construction of the Northwest Arkansas Regional Airport should spur continued job growth in the area. Homebuilding remained active in the region through the third quarter. Single-family home-building permits for the first 9 months of the year were up 19 percent to 95,158 units. Every State reported significant increases, except New Mexico, which held steady. The Austin-San Marcos area had the largest percentage gain, with permits up 56 percent for the first 9 months of 1996. Activity in Dallas-Fort Worth (20,207 units) and Houston (13,067 units) was up 19 and 26 percent, respectively. Through the third quarter of 1996, the number of multifamily units permitted was down in every State except Louisiana, which experienced an increase from a year ago. Activity was down 30 percent in the Dallas-Fort Worth area to 7,983 units after 3 years of very strong apartment construction. In San Antonio the number of multifamily units permitted in the first 9 months of 1996 (2,094) was up 34 percent over 1995's volume for the comparable period. Home sales continued strong in the Southwest. National Association Of Realtors (registered trademark) data as of the third quarter showed annual sales increases in Arkansas (4.3 percent), and Texas (3.0 percent), with activity in Oklahoma unchanged. In New Mexico sales have dropped to 27,200 a year. Regionwide the annual existing sales volume as of the third quarter was up 1.2 percent to 489,300 existing homes. Austin still ranks as the hottest housing market in Texas. However, apartment occupancy fell to 92 percent in August from 95 percent in June. In the 12 months ending June 1996, the area had absorbed 3,000 rental units. With approximately 5,800 units under construction and another 7,200 units in the planning stages, there is concern about the pace of development. The Dallas-Fort Worth area continues to experience its highest level of housing demand in 12 years, based on sales of existing housing. North Fort Worth and northeastern Tarrant County remain two of the hottest submarkets, stimulated by new jobs in the Alliance Industrial Airport area. Apartment occupancy in Dallas-Forth Worth is around 94 percent currently. Local sources estimate that the area has absorbed more than 10,000 new apartment units in the past 12 months. Houston's economy has been recovering steadily. Though job growth cooled off a bit this year, sales housing inventories remain in balance and rental occupancy rates are finally above 93 percent. There is concern about the rental market in San Antonio. Multifamily activity in the first 9 months of 1996 (2,094) was up significantly from the 1995 volume for the same period. Average apartment occupancy in San Antonio is about 91 percent, unchanged from a year go. Occupancy in apartments constructed after 1990 is currently around 83 percent. Albuquerque's sales and rental markets are showing signs of slowing. Apartment occupancy as of the third quarter of 1996 was reported to be 93 percent. The market is adjusting, with an almost 45-percent decline in multifamily permits for the 12-month period ending August 31, 1996, compared with the previous 12-month period. Single-family permits were up only 1.6 percent. In Texas 38,039 of the total 64,585 units in approved tax-credit projects have been placed in service. More than 22 percent of the approved units are in Dallas, with an additional 21 percent in other parts of the Dallas-Fort Worth metropolitan area. Houston received 16.5 percent of the units, followed by Austin with almost 4 percent. Spotlight on Tulsa, Oklahoma Since 1990 Tulsa's economy has become more diversified and less dependent on the oil industry. Oil dominated the area's economic activity for decades, earning Tulsa the title of "Oil Capital of the World." Fifteen years ago oil and oil-related industries accounted for more than 20 percent of total employment. Today, less than 10 percent of employment falls into this category. The principal employers are now the aerospace, telecommunications, education, and health-care industries. Since 1990 the population of the Tulsa metropolitan area has grown 6 percent to 750,000. Average annual nonagricultural wage and salary employment rose by 12 percent from 1990 through 1995. During 1995 total employment grew by 3.6 percent and the unemployment rate averaged 4.4 percent. The McClellan-Kerr Arkansas River Navigation System has made Tulsa the Nation's most inland all-weather port. This system provides a commercially navigable channel through 17 locks and dams for 445 miles to a point on the Mississippi River 600 miles north of New Orleans. The port provides a competitive advantage to the Tulsa area, as shipment by barge is about one-third the cost of railroad transport and one-fifth the cost of shipment by truck. Waterway traffic through the port in July 1996 was more than double that of July 1995. The University of Tulsa is in the process of implementing a plan to renovate its physical plant and to start construction of a $28 million arena and convocation center in January 1997. This investment promises to be a catalyst for further development along an old stretch of Route 66 about 4 miles from downtown. Another development announced for the Route 66 corridor is a shopping mall. Moderate population growth in construction during the past 6 years has absorbed the oversupply of housing created in the early and mid-1980s when housing starts soared. Employment began to decline in the mid-1980s, mirroring the fortunes of the oil industry. Single-family home construction averaged just more than 1,700 units annually from 1985 through 1989, but has rebounded to more than 2,500 units annually since 1990. Several national housing cost indices rank Tulsa among the most affordable housing markets in the country. The majority of new homes are in the $110,000 to $125,000 range, and the median sales price of an existing home was $82,800, as of the third quarter of 1996. Construction continues strong in the suburban communities of Broken Arrow and Owasso. The Tulsa rental housing market is experiencing a moderate amount of new construction activity following the 1988 through 1993 period when only 89 multifamily units were authorized annually. Permits were issued for more than 1,000 multifamily housing units in 1995 and almost 600 units during the first 9 months of 1996. This renewed activity has caused only a slight increase in the rental vacancy rate, which remains around 7 percent. Rent increases have averaged about 3.5 percent during the past 2 years. ------------------------------ GREAT PLAINS Nonagricultural employment growth slowed during the past year. Between August 1995 and August 1996, employment in the region increased 1.4 percent (82,700 jobs) compared with 2.2 percent from August 1994 to August 1995. Employment growth in 1996, in fact, was the lowest since 1992. Kansas reported the highest annual rate of employment growth in the region, 2.3 percent, with gains in construction, manufacturing, and retail trade accounting for more than three-fifths of the new jobs. More than 90 percent of the 5,200 new jobs in manufacturing resulted from aircraft industry expansion by the State's four aircraft producers -- Boeing, Cessna, Raytheon (formerly Beech Aircraft), and Learjet. Learjet has announced that it will add 300 jobs in 1997. This firm is building a flight-test center in Wichita and is modernizing manufacturing equipment and buildings. Iowa's 1.4-percent employment growth in the 12 months ending August 1996 was the lowest in 4 years, lagging the national rate for the first time this decade. Employment declines in goods-producing industries were widespread, with jobs in nondurable goods falling by 3.3 percent. Most of the employment loss was in the meat processing industry due to the closure of meatpacking facilities in Dubuque and Des Moines. Missouri's job growth slowed to 31,400 jobs (1.3 percent). Nebraska, with 5,400 new jobs (0.7 percent) also had its lowest growth during the 1990s. Labor markets remain tight throughout the region. In August Nebraska had the lowest unemployment rate, 2.4 percent, unchanged from a year earlier. The other States reported lower rates than in 1995, with Iowa dropping to 2.8 percent, while Kansas and Missouri declined to 4.0 and 4.3 percent, respectively. Employers have reported difficulty finding workers, particularly in the Kansas City, Des Moines, Omaha, and Wichita metropolitan areas. Great Plains residential construction activity has held strong thus far in 1996. The number of single-family units permitted (34,422) through the third quarter of 1996 was up 16 percent from strong 1995 levels. Building activity in Kansas was up 15 percent to 7,712 units. Activity also rose in Nebraska (20 percent), Missouri (13 percent), and Iowa (23 percent). Most of the region's metropolitan areas recorded gains. However, Dubuque's residential permits were down significantly, reflecting the loss of almost 2,000 jobs, 900 from one meatpacking firm alone during the past year. Multifamily housing construction, which had been stagnant since 1988, is now showing strength, with permits issued for 14,327 units in the first 9 months of 1996. This activity exceeded the pace for the same period in 1995 by 54 percent. Nebraska, with 3,300 units, was up 48 percent, getting a major boost from Omaha, which is experiencing its largest apartment building boom since 1986. Activity in Lincoln was also strong, with almost 700 units permitted through September, its best year since 1990. The multifamily vacancy rate in larger apartment complexes in Lincoln remained at a very low level, 3.1 percent, unchanged from 1995. Kansas, with 4,408 multifamily units, reported its largest multifamily housing volume in a decade due to strong demand in the Wichita, Lawrence, and suburban Kansas City markets. Multifamily housing activity rose by 26 percent to 4,210 units in Missouri and by 12 percent to 2,408 units in Iowa. The annual rate of existing home sales in the Great Plains region as of the third quarter was up 1.2 percent from the year-earlier period. Modest gains were reported in Iowa (6.6 percent), and Nebraska (4.6 percent). Spotlight on Omaha, Nebraska-Iowa Since 1990 employment growth in the Omaha area has averaged a healthy 2.3 percent annually. However, average employment of 376,600 jobs for the first 8 months of 1996 was only 1.6 percent above the same period in 1995. The unemployment rate has held steady, averaging a low 2.8 percent during the first 8 months. The latest substantial economic developments in the Omaha area are the result of acquisition, expansion, and merger. The Union Pacific Rail-road's recent acquisition of the Southern Pacific Railroad leaves only two dominant railroads in the Western United States -- the Union Pacific and the Burlington Northern Santa Fe. This buyout will cause the relocation of 800 corporate jobs from California to Omaha. WorldCom, Inc., of Jackson, Mississippi, and Omaha-based MFS Communications, plan to merge to provide Internet services, data transmission, and local and long-distance telephone services. The First National Business Park has started construction on 1,700,000 square feet of Class A office space. In downtown Omaha, a new hotel is nearing completion, the Omaha Civic Auditorium is being renovated, and a new Federal building is scheduled to begin construction soon. On the Iowa side of the metropolitan area, 3 recently opened casinos are among the top 10 employers in Council Bluffs. The Bunge Corporation of St. Louis has announced plans to construct a $100 million soybean crusher and refinery on a 460-acre site south of Council Bluffs. Midlands Mall, originally constructed with urban renewal funds, is being renovated as the Omni Centre, offering space for insurance firms and other corporate offices. The strong economy since 1990 has stimulated the sales housing market. In Douglas, Sarpy, and Pottawattamie counties, total home sales for the first 9 months of 1996 were up 18.3 percent over the same period in 1995. The price of homes sold during the 9-month period averaged more than $100,000 for the first time ever, according to the Register of Deeds Office. Single-family building permits (2,428 units) from January through September 1996 were 27 per- cent higher than those issued for the same period in 1995. Homebuilders have reported shortages of building materials, and there are labor shortages in certain construction trades. In response labor unions have increased their apprenticeship programs. Multifamily building permits were issued for 1,885 units during the first three quarters of 1996, 91 percent higher than for the same period last year. New apartments have been leasing very well. The most recent survey in the Spring of 1996 showed an overall apartment vacancy rate of 2.9 percent. The rental market is tight at present but, with the substantial increase in units under construction, is expected to become more competitive in the coming year. ------------------------------ ROCKY MOUNTAIN The third quarter of 1996 saw strong job gains in Utah while employment levels were little changed in the remaining Rocky Mountain States. Annual growth rates have slowed slightly for most States, although all but Wyoming are growing faster than the Nation. The annual rate of employment gains in Colorado, Montana, North Dakota, and South Dakota has settled into the 2- to 3-percent range. Utah continues to lead the region with a 5.6-percent gain, while Wyoming's growth rate has dropped below 1 percent. Utah's active manufacturing sector generated half of the manufacturing jobs created in the region during the past 12 months. It is significant to note that manufacturing in every Rocky Mountain State is stable or growing. Construction remains the fastest-growing industry in the region, led by double-digit annual gains in Utah, North Dakota, and Colorado. Residential construction activity remains high, but much of the growth is due to nonresidential projects in Colorado. The continued expansion of the E-470 Beltway in Denver will eventually cost $760 million. Hotel construction surrounding Denver International Airport has surged recently, and major mixed-use developments in this area appear closer to reality than they did last year. Building will begin on a $105 million prison in eastern Colorado in the fourth quarter of 1996. A variety of ski area expansions and a boom in retail building continue to add to construction employment. The services sector, particularly business and engineering services, has been providing more jobs than any other major industry. The summer tourism season was slow in much of the region, but job gains in eating and drinking establishments have continued at a high level. The opening of Park Meadows Mall south of Denver added more than 2,000 jobs to the retail trade sector. Denver's strong economy has caused some backlash, however. Union Pacific Railroad cited the high cost of Denver real estate as a factor in its recent decision to relocate 1,200 jobs from Denver to Omaha and St. Louis. Military strength levels at the larger installations in the region have stabilized following the round of closure and realignment announcements made last year. Installations near Colorado Springs, Rapid City, and Salt Lake City should maintain steady personnel levels for the next few years. Grand Forks Air Force Base (AFB) and Malmstrom AFB in Great Falls have yet to complete realignments that will result in a loss of a squadron or wing. Low unemployment rates prevail in the Rocky Mountain region. Three States -- North Dakota, South Dakota, and Utah -- typically have unemployment rates close to 3 percent. Colorado and Wyoming saw rates fall to the 4- to 5-percent range, while Montana's rate is usually above 5 percent. Montana is the only Rocky Mountain State with an unemployment rate higher than the national figure. Residential building activity remains above the pace set last year. Building permits were issued for a total of 59,499 units in the first three quarters of 1996, up 12 percent over last year. Single-family activity of 42,877 units was up in all States except Montana. Multifamily housing construction is down in Montana and the Dakotas, but is still increasing, albeit at a lower rate, in Colorado and Utah. As of the third quarter, apartment vacancy rates were down in Colorado Springs and Denver, despite dramatic increases in apartment construction. However, the markets have become much more competitive. Absorption of new apartment units remains strong, but rent increases have slowed or stopped in most markets. Denver's annual average increase in rents slowed to 4.3 percent, the first time since 1992 that the rate has dropped below 5 percent. Concessions once limited to projects in initial rentup have now spread to existing projects. In Colorado Springs rentup incentives are found at some new projects, but have not spread marketwide. Average annual rent increases in existing projects have slowed to single digits from the double-digit pace of the past few years. Salt Lake City's rental market has also seen a lowering of rent increases and a slight increase in vacancies. Existing home sales slowed slightly as of the third quarter in Colorado, Utah, and South Dakota. Sales in North Dakota were up 3.6 percent, and in Montana sales were up 19 percent over the third quarter of last year. Sales in the region as a whole were essentially unchanged from last year. The rate of increase in sales prices has slowed in some areas, although Colorado Springs and Salt Lake City continue to post double-digit annual price increases. More modest gains are typical in other major cities. Many builders are offering various incentives, such as landscaping, upgrades, or reduced financing costs. Spotlight on Durango, Colorado Durango is located in La Plata County in southwest Colorado near the Purgatory Ski Resort area and Mesa Verde National Park. The city is home to Fort Lewis College, which has an enrollment of 4,600 students and employs 550 faculty and staff. Like many amenity-rich areas in Colorado, the primary economic base has switched from mining to services for tourists and retirees, spurring growth during the past several years. The Durango area's employment growth has averaged well over 6 percent a year since 1990, with the trade and services sectors accounting for more than 70 percent of the gains. There is some seasonal swing to the economy, which peaks during the summer months when the narrow gauge railroad is in operation and Mesa Verde National Park attracts most of its visitors. Oil and gas exploration and extraction are still an important part of the economy, but local efforts to diversify have added jobs in recreational equipment and clothing manufacturing. The area's boom is expected to slow with some easing of inmigration, slower growth in tourism, and a capping of enrollment at Fort Lewis College. Mostly due to inmigration, the county's population has grown by an average of 3.2 percent a year since 1990 to an estimated 39,000 persons in 1996. Many inmigrants are self-employed or retired, coming from California, Texas, and Colorado's front-range cities. The area's rapid growth has pushed up housing costs significantly, causing some workers to commute from northern New Mexico. Homebuilding activity has more than doubled since the last growth period of the early 1980s. Activity in the early 1990s averaged about 250 units annually. In 1995 permits were issued for 643 units, including 144 multifamily units. New homes in the $300,000 to $400,000 price range were very popular in the early 1990s. This price range has become overbuilt, however, and builders have switched to constructing homes in the $150,000 to $225,000 range. The popularity of manufactured homes priced from $120,000 to $150,000 has also increased, with more than 200 placements in 1995. Apartment building in the Durango area has been limited because of high land and construction costs. The first significant-sized apartment development was completed this year, and its 40 units rented up rapidly. A HUD/Colorado Housing and Finance Authority risk-sharing project of 48 units is under construction. Rents for existing two-bedroom units have stabilized this year at between $650 and $750. New two-bedroom units rent for more than $800 a month. Most new multifamily housing construction since 1990 has been townhouses and condominiums, many of which are vacation properties or are owned by parents of students at Fort Lewis College. Some higher-end townhouses for retirees priced from $150,000 to $225,000 have just begun construction. ------------------------------ PACIFIC The economy in the Pacific region generated 435,000 new jobs in the 12 months ending August 1996, a 2.8-percent increase. More than 300,000 of the new jobs were in California, which had a 2.4-percent gain. The unemployment rate of 7 percent in California is at its lowest level since January 1991. The most vigorous job expansion has been in computers and software, motion picture production, international trade, and tourism. The San Francisco Bay Area and southern California are growing at about the same rate. Arizona added 83,000 jobs during the 12 months ending in August, a 4.7-percent increase. The gains were primarily in business and health services, trade, construction, and manufacturing. Four-fifths of the new employment was in the Phoenix area, recently ranked fifth nationally in rate of growth. Employment gains in Tucson were more than double last year's figure, with 8,400 jobs added in the 12 months ending in August. Nevada's growth in gaming, services, trade, and construction resulted in an employment increase of 53,400 jobs in the 12 months through August, with Las Vegas accounting for 80 percent of the gain. Employment growth has cooled recently compared with earlier in 1996, but the State still has the highest rate of growth in the country. Hawaii's economy continued to show gradual improvement, helped by growing tourism and stabilizing Federal and State employment. Single-family permits in the Pacific region were up 10 percent through September over the year-earlier period. Activity in Arizona and Nevada was up 10 and 13 percent, respectively, over very high levels in 1995. California continued to improve, with single-family permits up 11 percent, and 15 of 25 metropolitan areas reporting increases over last year. Hawaii's permits were off substantially, affected by the relatively slack economy. Existing homes are generally selling well in the Pacific region. The California resales market may see its best year since 1989, with annual sales volume up 16 percent as of the third quarter of this year over the same period in 1995. In Las Vegas resales from January through August were up 34 percent over the comparable period in 1995, and the median sales price held steady in recent months at about $120,000. Existing home sales in Phoenix are headed for a record year, with sales in the first 9 months of 1996 up 18 percent over the comparable period in 1995. Multifamily housing production in the region through September grew a modest 3.6 percent over 1995's volume for the comparable period. Almost 60 percent of the new units were permitted in Nevada (10,399) and Arizona (9,613), paced by a gains of 10 percent in Las Vegas and 15 percent in Phoenix. Both areas have vacancy rates of 5 to 6 percent in existing projects; however, some submarkets with large numbers of new units and more in the pipeline are showing higher vacancies, more concessions, and flatter rents. California rental markets continue to improve, prompting builders to respond with a 10-percent increase in multifamily housing units authorized (12,852) through September. In the San Francisco Bay Area, where vacancy rates have fallen to 3 percent or less in the West Bay and Santa Clara County, there are not enough new units to meet increased demand. In Sacramento vacancy rates have dropped substantially to a balanced 5 percent, down from 8 percent in early 1995. Conditions in the Southern California rental markets showed modest improvement in the third quarter of 1996. Occupancy in the Los Angeles rental market improved slightly to 91.1 percent currently, up from 90.8 percent in 1995, but rents remain flat. Rents are reportedly slated to rise only about 1 percent this year on average. Riverside-San Bernardino remains the softest rental market in Southern California, with overall occupancy estimated at about 86 percent. Modest employment growth in the area in 1996 has not made up for the loss of jobs in the defense and aerospace industries from 1990 to 1995. The San Diego and Orange County rental markets have recovered, with overall occupancy in both markets around 94 percent. Spotlight on Reno, Nevada The Reno metropolitan area (Washoe County) is Nevada's second most populous area, with 298,000 residents. Since 1990 the area has experienced significant population growth averaging 2.7 percent annually. A large part of the increase is due to inmigration, particularly from California. State demographers forecast an increase in the rate of population growth to more than 3 percent annually during the next 3 years. The Reno economy has also experienced significant employment gains, averaging 2.8 percent annually since 1990. As of August 1996, employment totalled 174,200 jobs, a 3-percent increase over August 1995. The largest percentage gains were in wholesale and retail trade, State government, and manufacturing. The hotel/gaming/recreation (HGR), business services, and Federal Government sectors reported slight declines. In the 12 months through August 1996, the unemployment rate decreased 2 percentage points to 4.1 percent. The economy of the Reno area is heavily dependent on government and tourism. Federal, State, and local government agencies employ 20,400 persons (12 percent of total employment). The HGR sector comprises 20 percent of the area's employment base. The four largest private employers are the Silver Legacy Hotel and Casino (2,600 personnel), the Reno Hilton (2,500), the Eldorado Hotel (2,400), and Harrah's Club (2,400). Retail trade accounts for 17 percent of employment. The Economic Development Authority of Western Nevada is working to diversify the Reno economy. Since January 1995 this organization has attracted 53 companies and 1,350 new jobs to the area. Reflecting the substantial population growth, the Reno sales housing market has been very active. From 1986 through 1992, single-family home construction averaged 1,770 homes annually. Since 1993 single-family permits have averaged more than 2,550 annually. The strong pace of building continued in the first 9 months of 1996, with more than 2,200 homes authorized by permits, 19 percent above the same period in 1995. The Reno-Sparks Association of Realtors (registered trademark) reported a median sales price of $126,500 for all homes sold in the first 9 months of 1996. Sales activity for the period increased by 2.2 percent to nearly 2,600 homes. FHA-insured mortgages increased by 36 percent, from 397 to 539, and VA activity was also up 29 percent, from 164 to 212. Rental housing production has also increased in the Reno area since the beginning of 1994. From 1991 through 1993, multifamily housing permits averaged only 150 units annually, as the area worked to absorb the excess supply brought on by overbuilding in the late 1980s. With improved market conditions, the number of multifamily permits in 1994 and 1995 increased to 725 units annually. For the first 9 months of 1996, permits were issued for 1,478 multifamily units, including an 864-unit apartment development. This development will test the market, which currently has high rental occupancy levels of around 96 percent. The first units of the project will come on the market in November 1996, and construction of all units will be completed by late 1997. Rents are high for the area, starting at $765 for a one-bedroom unit, ranging from $900 to $1,200 for a two-bedroom unit, and costing $1,385 for a three-bedroom unit. ------------------------------ NORTHWEST Economic growth in the Northwest accelerated during the past year. Nonagricultural employment as of the third quarter of 1996 averaged 4,655,985 jobs, 139,130 (3.1 percent) above the third quarter of 1995. The aerospace industry recovery has been the primary reason for the upsurge, as Boeing increased commercial aircraft production to record levels by hiring nearly 11,000 new workers in the past 12 months. In July this industry posted its largest monthly job gain (2,200) in 8 years. With rising employment in the aerospace, industrial machinery, instruments construction, finance, and service sectors, the region's economy is projected to remain strong during the next 5 years. The third quarter of 1996 saw employment up 4.2 percent in Oregon, 3.6 percent in Idaho, 2.6 percent in Washington, and 0.3 percent in Alaska over the same period last year. Employment growth in Oregon continued to be led by increases in the electronic and electrical equipment industry (11 percent), health services (9 percent), construction (10 percent), and business services (11 percent). The region's unemployment rate for the third quarter was 5.6 percent compared with 5.8 percent for the same quarter a year ago. Labor shortages are now a concern in both Oregon and Washington. The unemployment rate in Oregon this quarter was 5.0 percent, the second lowest rate in the past 25 years. Steady job growth and a slowdown in inmigration were largely responsible for the tightening of the labor market. In Washington the unemployment rate was 5.8 percent, down from 6.5 percent during the third quarter of 1995. The demand is high for technology workers, with Microsoft and Boeing offering higher wages to attract candidates from around the world. In Oregon average annual wages since mid-1991 have increased by 15.5 percent. The number of housing units authorized by building permits through September 1996 was up 11 percent from last year. The rate of increase was greatest in Alaska (21 percent) and Washington (14 percent). Single-family permit activity rose in every State, led by Washington and Idaho. Multifamily activity was up in every State except Idaho, where the number of units dropped 38 percent. In Oregon housing price appreciation was the second fastest in the Nation, according to a recent report by HUD's Office of Federal Housing Enterprise Oversight. During the 12-month period ending in June 1996, housing prices rose 9.1 percent, second only to Utah's 11.4 percent. Since mid-1991 housing prices for the State have shot up an average of 55.8 percent. The median price of existing homes sold in the Portland area during the third quarter was $144,550, up 9.9 percent over the comparable period in 1995, and in the Eugene-Springfield area, the median price was $117,300, up 8.7 percent. The manufactured housing industry continues to be a major factor in the Northwest housing market. In 1995 manufactured homes accounted for more than 20 percent of all new single-family homes in Washington State and nearly 50 percent of the activity in the State's nonmetropolitan counties. Affordability, with the average sales price starting at about $50,000; the short construction time; and the attractive choice of amenities are major reasons for the growing popularity of these homes. Amenities include gourmet kitchens, master suites, hardwood cabinets, and such options as skylights, vaulted ceilings, jacuzzi tubs, and fireplaces. Rental markets remained tight in Oregon and ranged from balanced to soft in Idaho and Alaska. Except for Seattle, most areas in Washington were soft. As of the third quarter, the rental vacancy rate in the Tri-Cities remained close to 15 percent, and rates were more than 7 percent in Spokane, Tacoma, and Bremerton. In Seattle strong employment growth, increased demand, and modest production have resulted in tighter market conditions, with the overall rental vacancy rate estimated at 3.5 percent. Apartment vacancies in the Seattle metropolitan area during the third quarter dropped to a 6-year low, down a percent from just 6 months ago. Competition has become keen for units located in close-in neighborhoods in Seattle and eastern King County, such as Bellevue, Kirkland, and Redmond, where vacancy rates are less than 2 percent. With only 2,300 new units expected to enter the market in 1996 and just more than 4,000 units anticipated in 1997, vacancy rates are expected to drop even lower. New construction continues to be hampered by current rent levels that are still too low to support any significant building activity. Rent increases for the past 4 years have not kept pace with inflation. The Low Income Housing Tax Credit (LIHTC) program is very popular in the Northwest. In Washington 100 percent of the units in most projects have rents that meet LIHTC restrictions, and most projects are located in urban areas or first-ring suburbs. Developments are targeted to both families and the elderly. Several large elderly projects in the Seattle metropolitan area have all of their units available for households with incomes at 40 percent of the median income. Five assisted-living facilities in the Seattle area have also been funded under LIHTC. These projects average 36 units, with 20 percent of the units typically targeting persons earning 50 percent of the median income. In Idaho most LIHTC-funded projects are for families, and typically 75 percent of the units are rent restricted. Spotlight on Boise, Idaho At the end of the third quarter of 1996, Boise was on the way toward 9 consecutive years of job growth, averaging 5.6 percent a year. Between the third quarter of 1995 and the third quarter of 1996, nonfarm employment was up a robust 5.2 percent. The seasonally adjusted unemployment rate averaged 3.9 percent during the third quarter. As a result of the sustained shortages in the labor market, hourly manufacturing wages from February 1996 through July 1996 rose 6.1 percent compared with the same period in 1995. In the manufacturing sector, machinery recorded the largest annual employment gain of 17.9 percent, while electronics moved up 15.5 percent, and construction rose 9 percent. Employment in food and kindred products manufacturing fell by 2.8 percent over the year, the only industry group in the goods-producing sector to lose jobs. The high-technology sector will not post job increases in the forthcoming months, as Micron has initiated a hiring freeze in response to falling memory chip prices and Hewlett-Packard has announced the closure of its Disk Memory Division. Hewlett-Packard's announcement will affect 1,150 of its employees, 500 of whom will likely be laid off or transferred. Employment in the services-producing sector increased by 6,350 jobs, for a 4.7-percent gain over the same quarter 1 year ago. Business and health services accounted for 45.6 percent of the jobs created in this area. State government employment declined by 1.9 percent over the year. In the first 9 months of 1996, building permits were issued for 3,181 single-family homes, a substantial 17-percent increase over 1995's volume for the same period. According to the Ada County Association of Realtors, a total of 4,587 homes were sold during the first 9 months of 1996, up 18.1 percent compared with the same period last year. The median sales price for the first 8 months of 1996 was $104,750, up 3.2 percent over the same period in 1995. Sales slowed slightly in the third quarter of 1996, but were still up 5 percent from a year ago to 1,258 homes. Sales of new homes totalled 486 units, up 20.8 percent compared with the same quarter 1 year ago. The median price of a new home was $112,375, but the number of new homes being built under $100,000 has increased compared with a year ago. The most popular prices for homes are the $70,000 to $89,000 and $120,000 to $159,000 price ranges, accounting for 23 and 19 percent, respectively, of total sales. Market supply as of the end of the quarter stood at 5.8 months, down 3 months from a year ago. The rental market has finally started to show signs of firming up in the third quarter. The vacancy rate dropped from a high of 10 percent at the end of 1995 to an estimated 8 percent in the third quarter of 1996. Vacancies are concentrated in three-bedroom units and upscale two-bedroom units, while one-bedroom units are hard to find, according to the third quarter Ada Real Estate Survey of nearly 9,800 units in the Boise area. The high vacancy rates in three-bedroom and two-bedroom units are a result of overbuilding and an increase in homeownership. Despite relatively soft market conditions in Boise, new below-market rent projects have leased up quickly. Multifamily housing permit activity has dropped dramatically. In 1993 and 1994, permits were issued for more than 3,800 units. By 1995 the number had dropped to slightly more than 900 units, and in the first 9 months of 1996, permits were issued for only 249 units. The rental market is not expected to achieve a balance until mid-1997, and then only if apartment construction remains low. ------------------------------ APPENDIX Telephone Rent Surveys During 1995 and 1996, HUD and public housing agencies conducted Random Digit Dialing (RDD) telephone surveys of 70 Fair Market Rent (FMR) areas. The purpose was to estimate the typical rent paid by tenants who had recently moved into standard-quality housing units. The results were used to recalculate the FMR, which is calculated at the 40th percentile gross rent (including utilities) of standard-quality rental units occupied by recent movers. HUD uses this rent standard in its Section 8 Housing Certificate and Voucher assistance programs. In cases in which the rent survey estimates were statistically different from HUD's estimates, the FMR was increased or decreased. The table below lists the date and 40th percentile gross rent from all of the 70 RDDs conducted by professional firms during 1995 and 1996 -- and one conducted in late 1994. HUD also conducted longitudinal surveys to measure the previous year's changes in median rents for metropolitan and nonmetropolitan FMR areas in each HUD region. These rent-change factors are used in HUD programs to adjust rents for units currently under contract. The metropolitan surveys exclude metropolitan areas covered by separate Consumer Price Index surveys. The 10 regions surveyed are almost the same as the 9 census divisions, except that the Alaska-Idaho-Oregon-Washington region is treated separately from the rest of the Pacific census division. ------------------------------ 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 (_______)_________________________________________