2002 Annual Data

The year 2002 was among the strongest years experienced by the housing industry. Low interest rates led to improvements in all conventional housing market indicators. By the end of 2002 the industry set many new records in single-family permits, new home sales, existing home sales, interest rates, and homeownership. Other indicators—total permits, starts, completions, and affordability—reached levels that were among the highest in the past two decades. Builders were more optimistic than they were in 2001 and were even more enthusiastic at the end of the year. Manufactured housing continues to be in the doldrums, as shipments fell to the lowest level in 40 years.

• Building permits were issued for 1,726,300 housing units in 2002, up 5.5 percent from 2001. The number of permits issued for new housing units in 2002 is the highest since 1986. Builders took out 1,319,100 single-family permits in 2002, up 6.8 percent from 2001. The 2002 level is the highest number of single-family permits ever reported in the 43-year history of this series.

• In 2002 construction was started on 1,704,900 housing units, up 6.4 percent from 2001. This is the largest number of starts reported in the past 16 years. Single-family starts totaled 1,359,700 housing units, up 6.8 percent from 2001 and the highest number of single-family starts since 1978.

• Builders completed construction on 1,650,700 housing units in 2002, an increase of 5.1 percent from 2001. The last time that completions were higher was in 1987, 15 years ago. Construction was completed on 1,328,400 single-family housing units, up 5.8 percent from 2001. This is the highest number of single-family completions in 24 years.

• Builders were more optimistic about the industry and the future in 2002 than they were in 2001. The National Association of Home Builders’^TM Housing Market Index (HMI) averaged 61 points in 2002, up 5 points from the 2001 average of 56 points.

• Sales of new single-family homes totaled 976,000 in 2002, up 7.5 percent from 2001. This is the highest number of new home sales reported in the 39-year history of this series.

• REALTORS^® sold 5,563,000 existing homes in 2002, up 5 percent from 2001 and an all-time high in the 34-year history of this series.

• Low interest rates continued in 2002. The commitment interest rate on 30-year, fixed-rate mortgages averaged 6.54 percent, down 43 basis points from 2001’s average interest rate. This is the lowest annual average in the 30-year history of Freddie Mac’s Primary Mortgage Market Survey.

• Low interest rates contributed greatly to very favorable housing affordability in 2002. The family earning the median income in 2002 had 137.3 percent of the income needed to purchase the median-priced existing home, according to the NATIONAL ASSOCIATION OF REALTORS^® (NAR). This rate remains unchanged from 2001 and is among the most favorable affordability rates experienced to date.

• Such favorable affordability conditions led to the highest annual homeownership rate in the 42-year history of the data series. In 2002, 67.9 percent of American households owned their own homes, an increase of 0.1 percentage point from 2001.

• The manufactured homes sector continues to operate at very low levels of production. In 2002 the industry shipped 169,000 new manufactured homes, down 12.4 percent from 2001. This is the lowest number of manufactured home shipments since 1963.

Fourth-Quarter Data

The year’s solid performance was based in part on very strong fourth-quarter performance. Housing production was at high levels and was generally above the third quarter of 2002 and the fourth quarter of the previous year. Sales were exceptional, with records for new home sales and near-record levels for existing home sales. Price changes were modest, and inventories are reasonable. Interest rates set records, and homeownership rates and affordability levels were at near-record levels. The multifamily housing picture was mixed; permits increased, but starts and completions fell off. Absorption rates for new apartments worsened, as did vacancy rates.

Housing production in the fourth quarter was very strong except for manufactured housing. Permits (total, single-family, and multifamily) were up, total and single-family housing starts were up, and singlefamily completions were up, although total completions were unchanged. Permits set a new monthly record in December and a quarterly record in the fourth quarter, and other series posted near-record quarterly values.

• Builders took out permits at a seasonally adjusted annual rate (SAAR) of 1,797,000 new housing units in the fourth quarter of 2002, 5 percent higher than in the third quarter and 9 percent higher than in the fourth quarter of 2001. Single-family permits were issued for 1,379,000 (SAAR) new housing units in the fourth quarter, up 6 percent from the third quarter and up 12 percent from the fourth quarter of 2001. December’s 1,880,000 (SAAR) units is the highest monthly level reported in the 42-year history of the series, and the quarterly value is also the highest ever reported.

• Construction started on 1,747,000 (SAAR) new housing units in the fourth quarter of 2002, up 3 percent from the third quarter and up 11 percent from the fourth quarter of 2001. Single-family starts totaled 1,417,000 (SAAR) units in the fourth quarter, up 6 percent from the third quarter and up 13 percent from the fourth quarter of the previous year. The single-family quarterly value is the eighth highest quarterly value reported in the 44-year history of the series.

• Builders completed construction on 1,663,000 (SAAR) housing units in the fourth quarter of 2002, virtually unchanged from the third quarter but up 3 percent from the fourth quarter of 2001. Single-family completions totaled 1,356,000 (SAAR) housing units in the fourth quarter, up 3 percent from both the third quarter of 2002 and the fourth quarter of 2001. The single-family quarterly value is the fourth highest reported in the 34-year history of the series.

• Shipments of new manufactured homes totaled 149,000 (SAAR) in the fourth quarter of 2002, down 11 percent from the third quarter and down 25 percent from the fourth quarter of 2001. Production levels this low have not been reported in the last 40 years.

Housing marketing and sales were outstanding in the fourth quarter. New home sales posted quarterly and monthly records and ended the year with a string of 5 months that recorded sales of more than 1 million (SAAR). Existing home sales were very close to the records set in the beginning of 2002. New home prices posted a modest increase in the fourth quarter, whereas existing home prices remained unchanged. Housing inventories increased slightly for new homes but were still reasonable given the sales activity level. Existing home inventories fell in both absolute terms and in terms of sales months.

• Builders sold 1,044,000 (SAAR) new single-family homes in the fourth quarter of 2002, up 2 percent from the third quarter and up 13 percent from the fourth quarter of 2001. This is the highest quarterly total reported in the 37-year history of the series. Sales have exceeded 1 million (SAAR) housing units for the past 5 months.

• REALTORS^® sold 5,730,000 (SAAR) existing homes in the fourth quarter of 2002, up 7 percent from the third quarter and up 9 percent from the fourth quarter of 2001. This is a very high rate and is near the level reached in the first quarter of 2002.

• Prices of new homes increased in the fourth quarter. The median price for new homes sold in the fourth quarter was $179,700, up 1 percent from the third-quarter median price and up 5 percent from the fourth quarter of 2001. The average price was $228,200 in the fourth quarter, up 4 percent from the third quarter and up 7 percent from the fourth quarter of the previous year. The estimated price of a constant-quality house was $210,200 in the fourth quarter of 2002, up 2 percent from the third quarter and up 5 percent from the fourth quarter of 2001.

• Existing home price changes were mixed in the fourth quarter. The median price of existing homes sold in the fourth quarter was $161,600, unchanged from the third quarter but up 9 percent from the fourth quarter of 2001. The average sales price of existing homes sold in the fourth quarter was $203,300, down 1 percent from the third quarter but up 10 percent from the fourth quarter of 2001.

• Housing inventories continue to be in line with sales. At the end of the fourth quarter there were 338,000 new homes available for sale, up 2 percent from the third quarter. These inventories would support 3.8 months of sales at the current sales pace, unchanged from the third quarter and down 0.1 month from the fourth quarter of 2001. Inventories of existing homes available for sale at the end of the fourth quarter totaled 2,060,000 houses, down 10 percent from the third quarter but up 12 percent from the fourth quarter of 2001. These inventories of existing homes would support 4.2 months of sales at the fourth-quarter sales pace, down by 0.9 month from the third quarter but unchanged from the fourth quarter of 2001.

• The HMI indicates that builders were more optimistic in the fourth quarter than they were in the previous quarter and in the fourth quarter of 2001. The composite HMI was 64 for the fourth quarter of 2002, up 4 points from the third quarter and up 13 points from the fourth quarter of 2001.

The ability of American families to afford to own their own homes was very good in the fourth quarter due to the continuation of low mortgage interest rates. The NAR Composite Housing Affordability Index (HAI) indicates that the median-income family earned 140.7 percent of the income needed to afford the median-priced existing home in the fourth quarter of 2002, 4.8 percentage points better than in the third quarter but 0.3 percent lower than in the fourth quarter of 2001. The improvement in the fourth-quarter affordability is due to a very slight increase in the median price of existing homes (0.1 percent), a modest 0.5-percent increase in median family income, and a large 30-basis-point drop in the mortgage interest rate. The interest rate on closed loans was 6.11 percent; this is the lowest value used in the 32-year history of the HAI. This favorable affordability led to a record-high homeownership rate in the fourth quarter of 68.3 percent, up 0.3 percentage point from both the third quarter of 2002 and the fourth quarter of 2001.

Multifamily (5+ units) housing was mixed. During the fourth quarter, permits increased whereas starts and completions fell; however, starts and completions were up from year-earlier figures. The absorption rate declined, and the vacancy rate increased.

• In the fourth quarter of 2002, builders took out permits for 347,000 (SAAR) multifamily housing units, up 7 percent from the third quarter but down 1 percent from the fourth quarter of 2001.

• Multifamily housing starts totaled 294,000 (SAAR) housing units in the fourth quarter of 2002, down 9 percent from the third quarter but up 3 percent from the fourth quarter of the previous year.

• Completions of multifamily units were equal to 279,000 (SAAR) housing units in the fourth quarter of 2002, down 10 percent from the third quarter but up 3 percent from the fourth quarter of 2001.

• Of the 61,700 new apartments completed in the third quarter of 2002, 57 percent were leased by the end of the fourth quarter of 2002, down from 63 percent in the third quarter and down from the 64-percent lease-up rate of the fourth quarter of 2001.

• The rental vacancy rate in the fourth quarter was 9.4 percent, up 0.3 percentage point from the third quarter and up 0.6 percentage point from the fourth quarter of 2001.