The U.S. economy in 1998 was at record-setting levels for most major indicators -- low unemployment, high consumer confidence, stable prices, strong income growth, Federal budget surplus, and low interest rates. The housing industry was both a cause and effect of the exuberant economy.
Preliminary estimates now available show 1998 to have been a very good year for the housing industry and for the housing consumer. Numerous records were set and many indicators are the best they have been in more than a decade.
While many worry that the activities of 1998 cannot be repeated, the strong finish in the fourth quarter is setting a vigorous pace for the beginning of 1999. Housing production finished the year on high notes across the board. The final quarter of 1998 saw gains in permits and starts, and third-quarter shipments of manufactured homes were also up.
Housing sales and marketing also broke records throughout the fourth quarter, with nearly 6 million new and existing homes sold on a seasonally adjusted annual basis in December.
These results are the consequence of a very robust economy featuring very low unemployment rates, stable prices, income growth, and low interest rates. While the housing industry has enjoyed one of its best years, the American family is experiencing the most favorable situation with respect to housing affordability and homeownership in a generation. Low interest rates, moderate home prices, and growing incomes have contributed to high levels of home-ownership and housing affordability. Interest rates averaged 6.77 percent on 30-year, fixed-rate mortgages, down 10 basis points from the third quarter and down 42 basis points from the fourth quarter of 1997. A family earning the median income and purchasing the median-priced home would have more than enough income to afford the purchase -- in fact the family would have 137.8 percent of the income needed. This is 5.7 percentage points higher than in the third quarter and 6.8 percentage points more than in the fourth quarter of 1997. These factors have led to the second highest quarterly home-ownership rate ever -- 66.4 percent in the fourth quarter, down 0.4 percentage point from the record-setting level of the third quarter but up 0.7 percentage point from the fourth quarter of 1997.
Multifamily (5+ units) housing also experienced a solid fourth quarter, with production levels generally strong and with favorable absorption and vacancy rates.
HUD's field economists report that all regions finished the year with healthy employment gains. New England job markets are tight and unemployment has fallen to near-record lows. The Washington, D.C. metropolitan area accounted for 35 percent of total employment gains in the Mid-Atlantic region. The strongest economic growth was in the Southwest and Pacific regions. Employment growth in the Northwest slowed from prior years, as lumber, agriculture, aerospace, and high-technology sectors bore the impact of the situation in Asia.
1998 was an outstanding year for homebuilding throughout the Nation. Single-family home building permits were up in every region, with 9 of the 10 regions achieving their largest totals of the decade. Among the highlights, the Southeast continued to boom and single-family activity in the Atlanta metropolitan area was almost 20 percent ahead of last year for the third consecutive record-breaking year. The Southwest's four markets -- Austin-San Marcos, Dallas-Fort Worth, Houston-Galveston, and San Antonio -- all reported large increases in single-family permits. Single-family building permits in California were up 11 percent, and 1998 activity in Arizona and Nevada set records.
Rental housing markets throughout the Nation also showed big gains in apartment production and continued strong demand in 1998. Multifamily housing building permit activity increased in every region. The New York City metropolitan area continued to show strong performance, with a 22-percent increase in the number of units permitted. The Washington, D.C. area recorded a 31-percent increase. The Dallas-Fort Worth and Houston areas recorded big increases in apartment construction and continued rapid absorption of new units. Denver-area multifamily permits were up 22 percent, a record for the 1990s. The Pacific region had the best year since 1990. The Seattle metropolitan area's rental housing market remains extremely tight despite increased apartment construction.