U.S. Housing Market Conditions, Fourth Quarter 2001: Summary

Year-end data suggest that 2001 was a strong year for housing despite a 9-month-long recession. New records were set and old records challenged for many housing market indicators. Annual records were set for new home sales, existing home sales, and homeownership; permits and starts ranked slightly ahead of the previous year. The new homeownership record surely was the result of very low interest rates and very favorable affordability conditions. However, not all is rosy, as manufactured housing shipments declined substantially and builders felt less optimistic about the future.

New building permits were issued for 1,612,100 housing units in 2001, up 1.2 percent from the 1,592,300 permits issued in 2000. The 2001 permit level is the third highest in the past 15 years.
Builders started construction on 1,603,100 new housing units in 2001, up 2.2 percent from the 1,568,700 units started in 2000. This is the third highest level in the past 14 years.
Completions in 2001 declined 0.4 percent to 1,556,700 housing units. Although this is the third highest total in the past 14 years, it also marks the second year in that period with a decline in completions.
New home sales set a record of 900,000 homes, up 2.6 percent from the 877,000 homes sold in 2000.
The NATIONAL ASSOCIATION OF REALTORS^Ž reported that existing home sales also set a record of 5,251,000 homes, up 2.7 percent from the 5,113,000 sold in 2000.
A record 67.8 percent of American households were homeowners in 2001, up 0.4 percentage point from the previous annual record of 67.4 percent set in 2000.
Interest rates were very low in 2001. The 30-year fixed rate on conventional mortgages averaged 6.97 percent, down 108 basis points from the 2000 average of 8.05 percent. The 2001 level is the second lowest interest rate recorded in this 30-year series.
Thanks to low interest rates, housing affordability was very favorable in 2001. The median family income was 143.3 percent of the income needed to afford the median-priced existing home, according to the NATIONAL ASSOCIATION OF REALTORS^Ž. This is 11.8 percentage points better than in 2000. Affordability in 2001 is the most favorable since 1973.
Builders' attitudes about the future seemed more pessimistic than in 2000 due in part to the influence of the September 11 attacks. The National Association of Home Builders'TM Housing Market Index (HMI) averaged 56 points in 2001, down 6 points from the 2000 average of 62 points.
Manufactured home shipments in 2001 dropped 23 percent from 2000. Shipments in 2001 totaled 193,300 units compared with 239,300 units for 2000.

The fourth quarter provided a solid end to 2001. Housing production was strong with permits and completions up; sales and marketing were especially strong with sales at near-record levels, slight price declines, and no worrisome inventory buildups. In the fourth quarter, homeownership reached a near-record rate, and affordability was very favorable with low interest rates pushing the index to near-record levels. Multifamily housing market conditions were somewhat mixed with production statistics mixed, apartment absorptions steady, and vacancy rates rising.

Housing production in the fourth quarter was fairly strong, although there were some weak spots. The levels for all indicators except manufactured homes reached reasonably high levels. Permits and completions increased over the third quarter, while starts decreased.

Builders took out permits at a seasonally adjusted annual rate (SAAR) of 1,578,000 housing units in the fourth quarter of 2001, 1 percent ahead of the third quarter and nearly unchanged from the fourth quarter of 2000. Single-family permits were issued for 1,200,000 (SAAR) housing units in the fourth quarter, unchanged from the third quarter of 2001 and the fourth quarter of 2000. These levels are slightly off from those of the past 4 years but are fairly high from a long-term perspective.
In the fourth quarter, construction was started on 1,571,000 (SAAR) housing units, down 2 percent from the third quarter of 2001 but up 2 percent from the fourth quarter of the previous year. Single-family housing starts reached 1,255,000 (SAAR) units, down 2 percent from the third quarter but up 3 percent from the fourth quarter of 2000. As with permits, starts are off slightly from the last 4 years but are fairly high from an historical perspective.
Housing completions in the fourth quarter totaled 1,602,000 (SAAR) housing units, up 1 percent from the third quarter and up 5 percent from the fourth quarter of 2000. Single-family completions totaled 1,300,000 (SAAR) housing units in the fourth quarter, up 3 percent from the third quarter and up 7 percent from the fourth quarter of 2000. This level of completions is very favorable; the level for single-family completions rivals any level achieved during the past 20 years.
Shipments of manufactured homes in the fourth quarter totaled 205,000 (SAAR) units, up 3 percent from the third quarter but down 5 percent from the fourth quarter of 2000. This represents a very low level of manufactured home shipments. Annual shipments of fewer than 200,000 housing units have occurred only three times in the 27-year history of the shipment series.

Housing marketing and sales were very strong in the fourth quarter with near-record levels for new and existing home sales. Inventories were low, especially considering sales volumes. Prices posted declines from the third quarter.

Builders sold 897,000 (SAAR) new single-family homes in the fourth quarter, up 3 percent from the third quarter but down 4 percent from the fourth quarter of 2000. This fourth-quarter rate is very high considering that the record annual rate set in 2001 is 900,000 homes sold.
REALTORS^Ž sold 5,200,000 (SAAR) homes in the fourth quarter of 2001, unchanged from the third quarter and up 2 percent from the fourth quarter of the previous year. As with new home sales, the level of existing home sales is very high, nearly equal to the record of 5,251,000 homes sold set in calendar year 2001.
New home price changes were somewhat mixed in the fourth quarter although generally lower. The median price was $169,000, down 2 percent from both the previous quarter and the fourth quarter of 2000. The average price increased 1 percent to $210,700 in the fourth quarter but was down 1 percent from the fourth quarter of 2001.
The prices of existing homes declined in the fourth quarter. The median price of an existing home stood at $148,000 in the fourth quarter, down 2 percent from the third quarter of 2001 but up 6 percent from the fourth quarter a year earlier. There was a 3-percent decline from the third quarter in the average price, to $184,900; this price was up 4 percent from the fourth quarter of 2000.
Housing inventories remain modest especially when gauged against sales volumes. At the end of the fourth quarter there were 308,000 new homes available for sale, which is 1 percent below the third-quarter inventory but 4 percent above the fourth quarter of 2000. When stated in terms of the number of months of sales, the fourth-quarter inventory of new homes would support 3.9 months of sales. This is 11 percent lower than the third quarter's inventory but 8 percent above the fourth quarter of 2000. The fourth quarter's inventory of existing homes was 1,820,000 homes, down 16 percent from the third quarter and down 1 percent from the fourth quarter of 2000. This inventory would support 4.2 months of sales, down 21 percent from the end of the third quarter and down 7 percent from the fourth quarter of 2000.
The National Association of Home Builders' Housing Market Index (HMI) shows builders to be less optimistic in the fourth quarter than they were in the third quarter of 2001 and in the fourth quarter of 2000. The composite HMI stood at 51 in the fourth quarter, down from the 57 posted in the third quarter and the 62 posted in the fourth quarter of 2000. While the quarterly value was low, the individual monthly values show an upward movement indicating a rebound from September 11.

American families were better able to afford housing thanks in large part to low interest rates. The NATIONAL ASSOCIATION OF REALTORS^Ž Composite Housing Affordability Index showed that the median-income family had 147 percent of the income needed to afford the median-priced existing home in the fourth quarter. This is 9.5 percentage points better than in the third quarter of 2001 and 13.5 percentage points better than in the fourth quarter of 2000. This improvement is due to a combination of a 2-percent decline in the median price of existing homes sold, a 1.2-percent increase in median family income, and a 35-basis-point decline in the interest rate. The interest rate used in the affordability calculation was 6.71 percent in the fourth quarter of 2001, lower than any other annual rate reported in the 30-year history of the series. Such favorable affordability supported homeownership for 68.0 percent of all American households. This quarterly homeownership rate is down 0.1 percentage point from the third quarter's record rate but up 0.5 percentage point from the fourth quarter of 2000. This makes it the second highest quarterly homeownership rate ever reported.

Market conditions for multifamily housing were mixed in the fourth quarter. Multifamily (5+ units) permits increased, starts were unchanged, completions declined, absorptions were flat, and the vacancy rate increased.

There were 309,000 (SAAR) multifamily permits issued in the fourth quarter of 2001, up 5 percent from the third quarter but down 1 percent from the fourth quarter of 2000.
Multifamily housing starts in the fourth quarter of 2001 remained unchanged from the third quarter at 288,000 (SAAR) units, but increased 3 percent from the fourth quarter of 2000.
Completions of multifamily housing units totaled 269,000 (SAAR) units in the fourth quarter, down 5 percent from both the third quarter of 2001 and the fourth quarter of 2000.
Of the 57,000 apartments completed in the third quarter of 2001, 65 percent were leased by the end of the fourth quarter. This absorption rate is unchanged from the third quarter but down 8 percentage points from the fourth quarter of 2000.
Rental vacancy rates increased in the fourth quarter of 2001. The fourth-quarter rate stood at 8.8 percent, up 0.4 percentage point from the third quarter and up 1.0 percentage point from the fourth quarter of 2000.

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