The housing sector continued to show high levels of production (permits, starts, and completions) and sales activity, particularly in the single-family market, in the second quarter of 2003. New and existing sales are at or near record-setting levels. With mortgage interest rates and affordability more favorable than in the past 30–40 years, more American families can afford to purchase houses. The multifamily market had reasonable levels of production in the second quarter but is not expanding. The absorption rate of new rental apartments recovered slightly during the second quarter but is still low by historic standards, and the rental vacancy rate continues to rise to record levels.

Housing production in the second quarter of 2003 was up slightly from both the first quarter of 2003 and the second quarter of 2002. Strong production in the single-family market reached near-record levels. Total and single-family permits were up from both the first quarter of 2003 and the second quarter of 2002. Total housing starts fell slightly, and single-family starts were unchanged from the first quarter, but both were still at historically high levels. Both total and single-family completions rose compared with the previous quarter and second quarter of 2002. The manufactured housing industry, however, continued to post some of the lowest shipment levels in more than 40 years.

• Builders took out permits for new housing units at a seasonally adjusted annual rate (SAAR) of 1,781,000 units in the second quarter of 2003, up 2 percent from the first quarter of 2003 and up 4 percent from the second quarter of 2002. Single-family permits totaled 1,367,000 (SAAR) units in the second quarter of 2003, up 2 percent from the first quarter of 2003 and up 6 percent from the second quarter of 2002.

• Construction started on 1,723,000 (SAAR) new housing units in the second quarter of 2003, down 1 percent from the first quarter of 2003 but up 2 percent from the second quarter of 2002. Single-family starts reached 1,402,000 (SAAR) units in the second quarter of 2003, nearly unchanged from the first quarter of 2003 but up 5 percent from the second quarter of 2002.

• In the second quarter of 2003 construction was completed on 1,699,000 (SAAR) new housing units, up 3 percent from both the first quarter of 2003 and the second quarter of 2002. Single-family completions reached 1,372,000 (SAAR) units in the second quarter, up 5 percent from both the first quarter of 2003 and the second quarter of 2002.

• Manufactured housing producers shipped 130,000 (SAAR) housing units in the second quarter of 2003, down 4 percent from the first quarter of 2003 and down 22 percent from the second quarter of 2002. Shipments have not been this low since the early 1960s.

Housing marketing and sales were very strong in the second quarter of 2003, with record and near-record sales. New home sales reached a quarterly record, and existing home sales nearly tied the record. Both new and existing home prices rose from the first quarter. Inventories of homes available for sale are still reasonable at 3.6 months for new homes and 5.1 months for existing homes.

• Builders sold 1,089,000 (SAAR) new single-family homes in the second quarter of 2003, which is up 11 percent from the first quarter of 2003, up 14 percent from the second quarter of 2002, and a quarterly record. In fact, sales volumes for three of the four past quarters have set records.

• REALTORS^® sold 5,827,000 existing homes in the second quarter of 2003, 1 percent below the first quarter of this year but 5 percent above the second quarter of 2002. The sales volume in the second quarter of 2003 is the second highest quarterly level reached, only 40,000 units short of the record set in the previous quarter.

• New home prices increased in the second quarter of 2003. The median price of a new single-family home was $189,300, 2 percent above the previous quarter and 1 percent above the second quarter of 2002. The average price was $241,700, up 4 percent from the first quarter of 2003 and up 6 percent from the second quarter of 2002. The estimated price for a constant-quality house was $215,000, unchanged from the first quarter of 2003 but up 4 percent from the second quarter of 2002.

• Existing home prices increased from the first quarter, according to data from the NATIONAL ASSOCIATION OF REALTORS^® (NAR). The median price for an existing home was $168,900 in the second quarter of 2003, 5 percent higher than the first quarter and up 7 percent from the second quarter of 2002. The average price of an existing home was $215,600 in the second quarter of 2003, up 6 percent from the first quarter and up 7 percent from the second quarter of 2002.

• Inventories of new and existing homes rose in the second quarter of 2003, although they remain reasonable compared with sales activity. At the end of the second quarter 345,000 newly constructed homes were available for sale, 1 percent higher than in the first quarter of 2003 and 5 percent higher than in the second quarter of 2002. At the current sales rate this inventory will support 3.6 months of sales, down 0.5 month from the first quarter of 2003 and down 0.6 month from the second quarter of 2002. The inventory of existing homes available for sale at the end of the second quarter of 2003 consisted of 2.5 million housing units, up 12 percent from the first quarter of 2003 and up 11 percent from the second quarter of 2002. This inventory will support 5.1 months of sales, up 0.4 month from the first quarter of 2003 but unchanged from the second quarter of 2002.

• The National Association of Home Builders™ Housing Market Index indicates that builders were less optimistic in the second quarter of 2003 than they were in the first quarter and a year ago. The composite index for the second quarter of 2003 was 57, down 2 points from the first quarter of 2003 and down 3 points from the second quarter of 2002. Two of the three index components fell: current sales by 4 points and prospective buyer traffic by 2 points. The third component, expected sales, rose by 4 points.

In the second quarter of 2003 housing affordability was nearly the same as in the record-setting previous quarter, according to housing affordability indexes published by NAR. Although interest rates continue at record lows and family incomes are increasing, if slowly, these influences were canceled by increases in home prices. The composite index indicates that a median-income family had 143.5 percent of the income needed to purchase the median-priced existing home using standard lending guidelines, just 0.7 percentage point below the first quarter of 2003 but up 12.2 percentage points from the second quarter of 2002. This change is due to a 32-basis-point decline in the mortgage interest rate and a 0.7-percent increase in the median family income, balanced by the 4.8-percent increase in the median price of existing homes. This constant high affordability has maintained the homeownership rate at historically high levels. The homeownership rate in the second quarter of 2003 was 68.0 percent, unchanged from the first quarter of 2003 but up 0.4 percentage point from the second quarter of 2002.

The multifamily (5+ units) sector had reasonable production with permits up slightly, starts down slightly, and completions unchanged. Signs of weakness remain in the multifamily market, however. Market absorption of new multifamily apartment units increased from the previous quarter but is still historically low, with 4 in 10 new rentals on the market for 3 months without being leased. Not only are new units remaining vacant, but the rental vacancy rate is also at a record high of 9.6 percent.

• In the second quarter of 2003 builders took out permits for 334,000 (SAAR) multifamily housing units, up 2 percent from the first quarter of 2003 but down 3 percent from the second quarter of 2002.

• Multifamily housing starts totaled 292,000 (SAAR) housing units in the second quarter of 2003, down 1 percent from the first quarter and down 4 percent from the second quarter of 2002.

• Multifamily housing completions reached 296,000 (SAAR) units, unchanged from both the first quarter of 2003 and the second quarter of 2002.

• In the first quarter of 2003, 37,700 new, unfurnished, for-rent apartments in multiunit buildings were completed, and in the second quarter of 2003, 59 percent of these units were leased, or absorbed, by the market. This absorption rate is up 3 percentage points from the first quarter of 2003 but down 1 percentage point from the second quarter of 2002. Recent absorption rates have been considerably lower than the historical norm of approximately 72 percent.

The rental vacancy rate in the second quarter of 2003 was 9.6 percent, up 0.2 percentage point from the first quarter of 2003 and up 1.2 percentage points from the second quarter of 2002. This vacancy rate is the highest since the data series began in 1956.