The U.S. housing market exhibited overall strength in the second quarter of 2002, although some indicators registered declines. Housing production remained at a high level with starts, permits, and completions all reaching more than 1.6 million housing units. However, these levels were somewhat lower than those of the first quarter. Marketing and sales provided signs of strength, as both new and existing home sales increased over the first quarter at record-setting or -challenging rates. Inventories were reasonable, and price changes were mixed. Interest rates remained below 7 percent (the lowest levels in 30 years), keeping housing affordability at very favorable levels. Homeownership rates declined slightly in the second quarter, creating some cause for concern. Multifamily housing showed signs of strength in increasing production and decreasing vacancy rates but weakness in the decreasing absorption of new apartments.

Housing production in the second quarter of 2002 declined slightly from the first quarter but generally remained above the activity levels of the second quarter of 2001. Even with declines, the levels of starts and permits stayed fairly high. Completions were also at a fairly high level, increasing slightly over the first quarter. The manufactured housing industry continued to ship at a rate of fewer than 200,000 homes per year.

• Permits were issued for 1,669,000 (seasonally adjusted annual rate (SAAR)) new housing units in the second quarter of 2002, 1 percent lower than in the first quarter but 2 percent higher than in the second quarter of 2001. Of these permits, 1,272,000 (SAAR) were for single-family houses, representing a 3-percent decline from the first quarter but a 2-percent increase over the second quarter of 2001. The level was comparable to values reported in the past 4 years.

• Builders started construction on 1,658,000 (SAAR) housing units in the second quarter, 4 percent lower than in the first quarter but 2 percent higher than in the second quarter of 2001. Single-family starts totaled 1,334,000 (SAAR) housing units in the second quarter of 2002, 3 percent below the first-quarter level but 3 percent above the second quarter of 2001. As with permits, the level is similar to annual values posted in the past 4 years.

• In the second quarter, 1,641,000 (SAAR) housing units were completed, up 1 percent from the first quarter of 2002 and up 4 percent from the second quarter of 2001. Single-family completions accounted for 1,304,000 (SAAR) houses, down 2 percent from the first quarter but up 4 percent over the second quarter of 2001. Levels are very high, at more than 1.6 million units, and compare favorably with the performance of the past 4 years.

• Shipments of new manufactured housing totaled 180,000 (SAAR) units in the first quarter of 2002, down 10 percent from the fourth quarter of 2001 but up 2 percent from the first quarter of 2001. Shipments in the first 2 months of the second quarter, at slightly more than 175,000 (SAAR), indicate that this sector continues to operate at rates that have reached historic lows.

Housing marketing and sales were generally upbeat for the second quarter of 2002. Sales of both new and existing homes set or challenged records. New home sales increased over both the first quarter of 2002 and the second quarter of 2001, setting a new monthly record of more than 1 million (SAAR) homes in June. New home sales appear likely to set a new record for the year. Existing home sales continued on a record-setting pace during the second quarter, even though sales declined compared with the first quarter. Prices were mixed in the second quarter, with new home prices decreasing and existing home prices increasing. Inventories of both new and existing homes increased; however, the new home inventory stayed below 4 months of sales, while the existing home inventory moved above 5 months of sales. Builders were slightly more optimistic about the future but less positive about the volume of prospective buyer traffic.

• Builders sold 976,000 (SAAR) new single-family homes in the second quarter of 2002, 8 percent above the first-quarter pace and 10 percent above the second quarter of 2001. In June, a new monthly record of 1,001,000 (SAAR) was set. A new annual record of 907,000 housing units sold was set in 2001, and, so far, activity in the first two quarters of 2002 has challenged this record. It appears that 2002 may be a record-breaking year for new home sales.

• REALTORS^® sold 5,527,000 (SAAR) existing homes in the second quarter of 2002, down 4 percent from the first quarter but up 4 percent from the second quarter of 2001. During the first 6 months of 2002, the monthly rates for existing home sales have averaged nearly 5.7 million (SAAR) homes, a pace that is significantly above the annual record of 5.3 million set in 2001.

• New home prices decreased in the second quarter. The median price of new single-family homes was $182,400, 3 percent below the first quarter's median price but 2 percent above the median price of the second quarter of 2001. The average price was $225,100, down 1 percent from the first quarter but up 7 percent from the second quarter of 2001.

• Existing home prices increased in the second quarter compared with both the first quarter of 2002 and the second quarter of 2001. The median price of existing homes sold in the second quarter was $157,700, which is 4 percent above the first quarter and 7 percent above the second quarter of 2001, according to the NATIONAL ASSOCIATION OF REALTORS^®. Existing home prices averaged $202,400 in the second quarter, up 6 percent over the first quarter and up 9 percent from the second quarter of 2001.

• Inventories of houses available for sale increased in the second quarter, although the size of the new homes inventory remains below 4 months of sales. There were 325,000 new single-family homes available for sale at the end of the second quarter, up 3 percent from the first quarter and 8 percent from the second quarter of 2001. This inventory would provide 3.9 months of sales at the current sales pace, down from the 4.2 months' supply available at the end of both the first quarter of 2002 and the second quarter of 2001. There were 2,200,000 existing homes available for sale at the end of the second quarter, 5 percent above the inventory at the end of the first quarter of 2002 and 2 percent above the inventory available at the end of the second quarter of 2001. In terms of sales, the existing homes inventory would support 5.2 months of sales at the current pace, up from 4.7 months at the end of the first quarter and up from 4.9 months at the end of the second quarter of 2001.

• Builders are slightly more optimistic, according to the Housing Market Index published by the National Association of Home Builders. The index value for the second quarter was 60, up from the first-quarter value of 59 and the second-quarter 2001 value of 57. Components of the index indicate that builders feel most positive about future sales expectations but are concerned about prospective buyer traffic.

Housing affordability, although declining from the first quarter, remains very favorable according to the housing affordability indexes of the NATIONAL ASSOCIATION OF REALTORS^®. Interest rates decreased slightly (4 basis points), going from 6.86 percent to 6.82 percent. This rate is among the lowest in the past three decades. Housing price increases of 4.4 percent were large enough to offset the decline in interest rates and the rise in median family income (0.5 percent). In the second quarter, a family earning the median income had 132.6 percent of the income needed to purchase a median-priced existing home; this is 0.6 percentage point below the first-quarter affordability index and 2.4 percentage points below the 2001 second-quarter value. Low interest rates and favorable affordability support homeownership for 67.6 percent of American households. This is down from 67.8 percent in the first quarter of 2002 and down from 67.7 in the second quarter of 2001. The second-quarter decrease marks the third consecutive decline in the homeownership rate.

Multifamily (5 or more units) housing showed both strengths and weaknesses. Production appeared strong with increases in both permits and completions. However, the 91-day absorption rate for new rental apartments continued to be weak with absorption considerably below the 70- to 80-percent range. Vacancy rates indicate some strength in the multifamily market, falling to less than 9 percent.

• Multifamily housing permits were issued for 324,000 (SAAR) units in the second quarter of 2002, which is 3 percent above the first-quarter 2002 rate but down 1 percent from the second quarter of 2001.

• In the second quarter of 2002, there were 290,000 (SAAR) housing units started, down 4 percent from the first quarter and unchanged from the second quarter of 2001.

• Multifamily completions totaled 289,000 (SAAR) units in the second quarter of 2002, which is 14 percent above the first-quarter rate and 2 percent above the second quarter of 2001.

• Of the 38,000 new, unsubsidized, unfurnished, multifamily rental apartments completed in the first quarter, 60 percent were rented in the second quarter of 2002. This second-quarter absorption rate is 1 percentage point higher than the first-quarter absorption rate but 5 percentage points lower than the second-quarter 2001 absorption rate.

• In the second quarter of 2002, rental vacancy rates averaged 8.5 percent, down 0.6 percentage point from the first quarter but up 0.2 percentage point from the second quarter of 2001.