U.S. HOUSING MARKET CONDITIONS 4th Quarter 1996 February 1997 ------------------------------- SUMMARY Despite downturns in the fourth quarter in housing production and marketing, 1996 was an excellent year for the housing industry. Building permits slipped 2 percent in the fourth quarter, but the 1,430,900 units permitted in 1996 made it the best year since 1988. Single-family permits at 1,073,100 were at the fourth-highest number since the series started in 1959, exceeded only in 1977, 1978, and 1986. Housing starts declined 5 percent in the fourth quarter, but at 1,473,700 units, 1996 also was the best year since 1988 for housing starts. Single-family housing starts had their second-best year since 1986, exceeded only in 1994. In housing marketing, new home sales decreased approximately 6 percent in the fourth quarter of 1996, but the 756,000 sales made 1996 the third-best year since the series began in 1963; only the hyperactive years of 1977 and 1978 had higher new home sales. Existing home sales slipped 4 percent in the fourth quarter, but 1996 had the highest sales total ever with 4,086,000 units sold. This was 100,000 sales and 2 1/2 percent above the previous high year, 1978. The total for new and existing sales, 4,842,000 units, also set a new record, surpassing the 4,803,000 units sold in 1978. Because new homes are now larger and have more amenities than new homes in earlier years, the aggregate value of new homes sold in 1996 exceeded the value of homes in any prior year except 1994. The 1996 home typically was a trade-up home, while the typical 1978 home was a starter home. The average new home in 1978 had 1,755 square feet of floor area; the average new home in 1995 had about 2,100 square feet of floor area, which was a 20-percent increase. Based on constant 1996 dollars, the 1996 output totalled more than $135 billion, compared with $127 billion in 1995, $140 billion in 1994, and $134 billion in 1978. Another record was set by manufactured (mobile) home shipments in 1996. Shipments from manufacturers to dealers were expected to total 365,000 units in 1996, exceeding the previous record of 340,000 units shipped in 1995. This data series goes back to 1974, when the third-highest number, 329,000 units, was shipped. Another area that showed strength and vibrancy during 1996 was homeownership. The growing demand for owning a home, due to growing consumer confidence and made possible by affordable mortgage interest rates, accounted for the excellent year in new and existing home sales and manufactured (mobile) home shipments. The Nation's homeownership rate rose 0.7 percentage points in 1996, following an identical rise in 1995. The homeownership rate at the end of 1996 was 65.4 percent, almost back to where it was in 1980 (65.6 percent) before the decade-long decline in homeownership set in. The fourth-quarter downturn may presage the return to more normal levels of activity than many housing analysts have been anticipating. Except for housing completions, which naturally experience a timelag and so should continue to rise in 1997, most production and marketing measures can be expected to show some small declines into 1997 and perhaps 1998 as well. Any slowdown should be modest in the important single-family sector because the inventory of unsold homes is low and, therefore, any decrease in demand should not be magnified by an inventory correction. While the annual rental vacancy rate is at an all-time high and the regional reports indicate some soft markets are developing, multifamily housing construction is at a modest level by historical standards. Continued good economic conditions and a healthy demand for homeownership should continue to buoy the Nation's housing production and marketing. REGIONAL PERSPECTIVE Confirming the national data, field economists at the U.S. Department of Housing and Urban Development reported that 1996 was one of the best years in the past 7 years for housing sales at the local level. Homebuilding continued at a brisk pace in most of the major markets, while sales of both new and existing homes sustained high levels and set records in some areas. Sales of existing homes were especially strong in the Boston area. In the Mid-Atlantic region, the Washington, D.C., area ended the year with the fourth-largest volume of single-family permits nationally. Atlanta remained the hot market in the Southeast with more than 37,500 single-family houses authorized by building permits in 1996. The Midwest region had its highest level of home construction since 1978. California's sales housing market continued to improve, racking up the best performance since 1989; single-family permits were up in 17 of 25 of the State's metropolitan markets. Sales markets in the Northwest, particularly in the Puget Sound area, also continued to show strength. In much of the country, rental housing markets held firm. Tighter market conditions in Boston made rental housing construction feasible for the first time in many years. Midwest apartment building was at the highest level in the past 7 years. Texas also experienced high volumes of apartment construction. But there are warning signs that previously hot rental housing markets are starting to cool off. Large multifamily housing production volumes are causing concern in some markets in the Southeast, Southwest, and Rocky Mountain regions. There have been significant reductions in construction activity in the Orlando, Miami-Fort Lauderdale, Atlanta, and Raleigh-Durham areas. The Austin and Albuquerque rental markets, in particular, have softened due to an oversupply of new high-rent apartments. New apartment projects in the Denver area are continuing to fill, but rent concessions are widespread. THE PROVIDERS OF AFFORDABLE HOUSING Nearly 35 million households rent their housing units. Because of the importance of housing, the Federal Government provides assistance to slightly more than 4 million low-income households. Even with this level of support, another 12 million families who are eligible for assistance receive none and must rely on private-sector property owners for affordable housing. Thus it is important to know how this segment of the market operates. Whether and how providers of unassisted, affordable rental units serving these low-income families differ from owners providing more expensive rental units to families with higher incomes and more extensive choices is an important policy issue. This paper looks at information collected in the Property Owners and Managers Survey (POMS) conducted for the U.S. Department of Housing and Urban Development (HUD) by the U.S. Bureau of the Census.[1] IDENTIFYING AFFORDABLE RENTAL UNITS This work examines whether property owners and managers who provide affordable rental housing behave differently from property owners and managers of more expensive rental units. Affordable rental housing refers to units that do not cost so much as to be burdensome to lower income families. To identify affordable units, an approach is used based on HUD's income eligibility rules and affordability-burden guidelines. Affordable rental units are identified as those that a family with 50 percent of the HUD-adjusted area median income[2] (an income-eligible family) could afford without spending more than 30 percent of their income on rent, which is the standard of reasonable rent burden implicit in most of HUD's assisted-housing programs.[3] HUD-adjusted median family incomes are available for every county or county equivalent (nearly 3,200 areas). Ideally, these cutoffs would be adjusted for differences in the number of bedrooms; however, this added precision must await the merging of POMS, which does not contain number of bedrooms, with the 1995 American Housing Survey.[4] Using this definition about one-half of private-sector rental units would be considered affordable. This is somewhat higher than other studies have found.[5] For now this approach is sufficient to provide useful results on the providers of affordable housing, although the intention is to use the more refined definition in future work. WHO ARE THE OWNERS? Single-family privately owned rental units are predominately owned by individual investors whether the unit is affordable to lower income families or only to higher income families. The other forms of ownership infrequently occur for single-family properties and are distributed nearly the same for affordable units as for the more expensive units. Units in multifamily properties are also frequently owned by individual investors; however, individual investors more often own affordable units (59 percent) than more expensive units (44 percent).[6] This shortfall for more expensive units is made up by the higher presence of limited partnerships (14 percent for affordable units compared with 17 percent for more expensive units) and general partnerships (7 percent for affordable units compared with 11 percent for more expensive units). These last two differences are not statistically significant. Affordable rental units owned by noninstitutional owners, such as individual investors (including joint ownership by two or more individuals), estate trustees, and limited and general partnerships, are more likely to have a lower number of owners than the more expensive properties. For example 52 percent of affordable single-family rental units have one owner, while only 45 percent of the more expensive single-family rental units have one owner. Affordable multifamily rental properties owned by noninstitutional owners[7] exhibit the same pattern, with 31 percent of affordable units owned by a single owner compared with 23 percent for more expensive units. The difference for single-family rental units just misses being statistically significant. Other characteristics of noninstitutional owners reveal that affordable single-family rental units are more likely to be owned by older individuals, with 63 percent of the units having owners over 55 years old compared with only 44 percent for more expensive single-family units. No such clear pattern holds for noninstitutional owners of multifamily rental properties. Owners of affordable rental properties are more often reported to be female, with 32 percent for single-family affordable units compared with 27 percent for more expensive units. The difference for multifamily units is not as great, with 20 percent for affordable units compared with 17 percent for more expensive units. (Neither difference is statistically significant.) Overall, most rental units are owned by owners who are white. However, there are some interesting differences between affordable and more expensive rental units. Respondents for noninstitutionally owned affordable rental properties are more likely to have reported that the owners are African American (11 percent for single-family and 6 percent for multifamily) than is the case for more expensive rental units (2 percent for single-family and 3 percent for multifamily). Only the difference for single-family rental units is statistically significant. Owners of single-family rental units who are Asian or Pacific Islanders are more often owners of more expensive rental units, but again the difference is not large enough to be statistically meaningful. The differences in ownership by persons of Hispanic origin are small and insignificant. In terms of the number of total rental units owned, there is a statistically slight tendency for single-family rental units to be owned by persons who have no other properties. Owners of affordable multifamily rental units are more likely to own fewer total units than owners of more expensive rental units; 56 percent of the more expensive units have owners who own 50 or more units, while only 32 percent of affordable multifamily units have owners who own 50 units or more. This shift toward smaller scale for owners of affordable units in multifamily properties is also evident in the number of owners with two to four units (29 percent compared with 4 percent for owners of more expensive units). Compared with more expensive rental units, affordable rental units seem to be owned by individuals who are older, more frequently women, more frequently African Americans, and who own fewer other units. HOW WAS THE PROPERTY ACQUIRED? The predominant method of acquiring rental properties is reported to be purchasing for all types of property -- affordable and more expensive, single-family and multifamily. However, affordable single-family rental properties were acquired more often by inheritance or gift (13 percent) than was the case for more expensive single-family rental units (5 percent). This tendency, though smaller, is also present for rental units in multifamily properties, but it is not statistically significant (4 percent for affordable units versus 1 percent for more expensive units). Reasons for acquiring rental properties were somewhat different for single-family properties and less so for units in multifamily properties, though they are not statistically significant for either type of property. "Providing affordable housing" (4 percent for affordable units, 1 percent for more expensive units) and "income" (31 percent for affordable units, 25 percent for more expensive units) were more prevalent reasons for acquiring affordable single-family rental properties, while "as a residence for self or family" was the more prevalent reason for acquiring more expensive single-family rental units (32 percent versus 28 percent). For owners of units in multifamily rental properties, "retirement security" (9 percent for affordable units, 5 percent for more expensive units) and "family security" (4 percent versus 2 percent) played more important roles for affordable units than for more expensive units. "Long-term capital gains" was given as a reason more often by owners of more expensive multifamily rental units (19 percent) than by owners of affordable multifamily rental units (15 percent). Owners of affordable rental units, both single-family and multifamily, acquired their properties earlier than owners of more expensive rental units. Affordable rental units were more likely to be acquired before 1980 (39 percent for single-family and 38 percent for multifamily) than were more expensive rental units (24 percent for single-family and 31 percent for multifamily). Methods of financing acquisitions of properties showed a very sharp distinction for affordable single-family rental units, with 29 percent of owners reporting that they paid all cash while about 12 percent of the owners of more expensive single-family rental units reported paying all cash. Owners of multifamily rental units paid all cash less frequently, and the distinction between affordable and more expensive rental units is not statistically significant (9 percent for affordable units and 7 percent for more expensive units). In summary affordable single-family rental units were more often acquired as inheritances or gifts, purchased for all cash, and acquired earlier than more expensive units. Multifamily rental unit acquisition methods, reasons, and financing differ less between owners of affordable and more expensive units, with the exception of when they acquired the units. ATTITUDES TOWARD THE PROPERTY Regardless of unit type or affordability, the majority of owners plan to hold their properties for more than 5 years. Owners of affordable single-family rental units are more attached to their units than owners of more expensive single-family rental units, in contrast to multifamily rental properties where the opposite is true. Owners of affordable single-family rental properties more often responded that they would hold their properties for more than 5 years (71 percent compared with 62 percent for owners of more expensive units). For multifamily rental properties the pattern is reversed, although it is less pronounced and not quite statistically significant (81 percent for more expensive units versus 76 percent for affordable units). When asked whether they would buy their properties again, owners of affordable single-family rental units were more likely to answer in the affirmative (58 percent) than owners of more expensive single-family rental units (49 percent). Owners of multifamily rental properties were even more positive about doing it over again, but in this case the owners of more expensive units were more positive than owners of affordable units (75 percent versus 65 percent). More than 60 percent of all owners reported earning a profit or breaking even. For single-family rental units, owners of more expensive units more often reported earning a profit (52 percent compared with 49 percent for owners of affordable units) or having a loss (32 percent versus 31 percent for owners of affordable units). Owners of affordable rental units were more likely to report breaking even (20 percent compared with 15 percent for owners of more expensive rental units). These distinctions, however, do not have statistical significance. Owners of the more expensive units in multifamily rental properties were more positive, with more reporting profits (67 percent versus 58 percent for owners of affordable units) and fewer reporting losses (22 percent versus 27 percent for owners of affordable units). This is a statistically insignificant difference. When asked about the profitability of their properties compared with similar properties, most owners (60 to 68 percent) reported that their units were about the same as other similar units. Owners of affordable units were more likely to respond that their properties were less profitable than owners of more expensive units (36 percent versus 25 percent for single-family units and 20 percent versus 12 percent for multifamily units). In addition to profitability, owners were queried about changes in the value of their properties compared with other similar properties. The most common response (44 to 55 percent) was that the value remained the same. Owners of the more expensive single-family rental units were ambivalent: more indicated an increase in value (34 percent compared with 31 percent, although the difference is not statistically significant) and more indicated a decrease in value (23 percent compared with 13 percent of owners of affordable units). Owners of the more expensive units in multifamily rental properties were more positive about value, with 37 percent indicating an increase in value compared with 29 percent for owners of affordable units in multifamily rental properties. Owners of affordable rental units feel that they are competing with rental properties that are either assisted or that accept tenant-based assistance. Owners of affordable rental units, when asked if they compete with private properties that accept Section 8 tenants, more often respond affirmatively (45 percent versus 35 percent for single-family units and 51 percent versus 37 percent for multifamily properties). These owners of affordable rental units also see themselves competing more often with rental properties receiving non-Section 8 assistance and with public housing. Owners are generally positive about their properties -- they plan to hold on to them for long periods of time; they would most often purchase the properties again; they most likely made a profit or broke even; and they rated their units "better" or "about the same" compared with similar properties in terms of profits and value appreciation. Nevertheless important differences among these characteristics exist between affordable and more expensive single- family rental units. Owners of affordable single-family rental units gave more positive answers for length of future ownership, buying property again, and property value appreciation, and gave less positive answers for current profits and profitability compared with similar properties, than the owners of more expensive single-family rental units. Owners of units in more expensive multifamily rental properties were more unequivocal: They gave more positive responses to all these questions. Finally, owners of affordable rental units more often saw themselves competing with assisted housing for new tenants than owners of more expensive rental units. DEALING WITH SECTION 8 Knowledge of HUD's Section 8 program is not as widespread as one might expect. Only about one in six owners of single-family rental units is very familiar with the program; this is true for owners of both affordable and more expensive rental units. Furthermore, the percent of single-family homeowners not familiar with the program is higher among the owners of affordable units than among owners of more expensive units (59 versus 54 percent, a difference that is not statistically significant). Owners of multifamily rental properties are much more aware of the program, with one out of three owners very familiar and more than one out of three owners somewhat familiar. Multifamily owners' awareness of the program is about the same for those with affordable units as for those with more expensive units. About six out of seven owners of single-family rental units reported that they had not received any inquiries from prospective Section 8 tenants. There were no statistically significant differences in the number of inquiries received by owners of affordable units and owners of more expensive units.[8] Owners of multifamily rental units more often received some inquiries, with only 4 out of 10 reporting that they received no inquiries in the past 6 months. There is very little difference in the number of inquiries received by owners of affordable units and by owners of more expensive units in multifamily rental properties.[9] Similarly, owners of affordable rental units were more likely to have reported that they would accept Section 8 tenants (57 percent versus 47 percent for single-family units and 57 percent versus 44 percent for multifamily properties). Owners of both affordable and more expensive rental units who reported that they would not accept Section 8 tenants most often cited three reasons: potential problems with tenants, too many regulations, and too much paperwork. Owners of more expensive units cited these problems more often than owners of affordable units. Owners of more expensive units often said that their rents were too high compared with the Fair Market Rents used by the Section 8 program (31 percent versus 5 percent for single-family units and 45 percent versus 13 percent for multifamily properties). Owners of affordable single-family rental units had a slight tendency to be not as familiar with Section 8 and to receive fewer inquiries than owners of more expensive units, but they were more likely to accept Section 8 tenants than owners of more expensive single-family rental units. Owners of affordable units in multifamily rental properties were at least as familiar with the Section 8 program and were more willing to accept Section 8 tenants than owners of the more expensive multifamily rental properties. MAINTENANCE AND UPKEEP Affordable rental units are generally older than more expensive rental units. Seventy-two percent of affordable single-family rental units were built before 1970, while only 49 percent of more expensive rental units are as old. Multifamily rental units are newer than single-family rental units (55 percent built before 1970 compared with 37 percent built before 1970), but once again the affordable stock is older than the more expensive stock. A higher percentage of the owners of affordable single-family rental units (9 percent) reported spending no money on maintenance compared with owners of more expensive single-family rental units (4 percent), though the difference is not large enough to be statistically significant. In spite of the fact that many owners spent no money on maintenance, the median percentage of rental income spent on maintenance by owners of affordable single-family rental units is slightly above 10 percent, whereas owners of more expensive rental units spent slightly less than 10 percent. Owners of units in multifamily rental properties rarely spent nothing on maintenance, with their median amount spent on maintenance being about 16 percent of rental income for affordable units and a slightly higher median for more expensive units. This maintenance spending may reflect the maintenance policies that owners currently pursue. Only 75 percent of the owners of affordable single-family rental units reported handling all problems immediately and practicing preventive maintenance, while 87 percent of the owners of more expensive rental units followed such a policy. The percentage reporting that they postponed handling most problems and handled only major problems as soon as possible was nearly twice as high for affordable single-family rental units than for more expensive rental units (10 percent versus 5 percent). Though owners of units in multifamily rental properties more often followed better maintenance policies, the level of preventive maintenance was lower for affordable units than for more expensive units (86 percent versus 91 percent), and the frequency of postponing most problems was lower for more expensive units (2 percent versus 4 percent) than for affordable units, though not statistically so. When asked about their plans for future maintenance, owners gave almost identical responses as they gave for their current maintenance plans. Another indicator of maintenance and unit quality can be gleaned from owners' answers to questions about unit inspections in the past 2 years. Between 21 and 23 percent of single-family rental units and between 36 and 41 percent of units in multifamily rental properties were reported to have been inspected in the past 2 years. The most frequent outcome was that the units passed inspection (80 to 93 percent). Though the differences are not statistically significant, affordable units fared slightly worse than the more expensive units, with only 80 percent of single-family units and 89 percent of multifamily properties passing initial inspections, while the rates for the more expensive units were 85 percent and 92 percent, respectively. Overall, owners of affordable rental units faced more maintenance challenges from their older stock, but at the same time many of them spent no money on maintenance and, compared with more expensive rental units, did not follow as frequently a preventive approach with immediate attention to problems. CONCLUDING COMMENTS This paper has delved in a cursory way into the issue of whether owners of affordable rental housing units are different from owners of more expensive rental housing units. The analysis is based on tables with a simple and inexact two-way characterization of affordability. Further analysis is warranted, yet this preliminary treatment clearly reveals important differences that should be recognized in developing national housing policies. Affordable rental properties are older and are less aggressively maintained. They tend to be less profitable, and the providers of affordable multifamily rental properties are less optimistic about the future. Affordable rental housing providers more often perceive themselves to be in competition with federally assisted housing. Still the majority of providers of affordable rental housing expect to retain ownership for 5 or more years and would acquire the property again. ENDNOTES [1] The survey was conducted in the later part of 1995 and early 1996 from a nationally representative, scientifically selected sample of privately owned rental units. About 8,000 owners or property managers answered questions on property acquisition, financing, maintenance and capital spending, expenses, income, strategies, tenant selection, and tenant relationships. Additional information can be found in the November 1996 issue of U.S. Housing Market Conditions Report or on the World Wide Web at http://www.census.gov/hhes/www/poms.html. [2] HUD-adjusted median incomes, along with a description of the methodology used to calculate them for metropolitan areas and nonmetropolitan counties, are published each year as a HUD Notice. For example, the 1997 estimates were published in U.S. Department of Housing and Urban Development Notice: PDR-96-01 -- Estimated Median Family Income for Fiscal Year 1997, issued December 27, 1996. This is also available on the World Wide Web at http://www.huduser.org/fmrdata97/medians.html. [3] About 5 percent of the responses did not have a reported rent. [4] As a result of not adjusting for bedroom size, some rental units will be misclassified. For example it is possible that affordable three-bedroom units will be classified as more expensive, while expensive efficiency units will be classified as affordable. [5] See Rental Housing Assistance at a Crossroads: A Report to Congress on Worst Case Housing Need, Office of Policy Development and Research, U.S. Department of Housing and Urban Development, March 1996. Forty-three percent of rental units were affordable to families with up to 50 percent of area median family incomes. [6] Differences noted in the text are statistically significant at the 90-percent confidence level unless otherwise noted. [7] Personal characteristics for noninstitutional owners refer to the single owner, the operating general or lead partner in general partnerships, or any one of the owners if the property is owned by two or more individuals. [8] The upper response category for single-family units is "5 or more," and it is "100 or more" for units in multifamily properties. [9] The apparent anomaly of more expensive units receiving more inquiries may be an artifact. More expensive units may be located in larger properties (where owners indicated that they owned more total units) and thus would be expected to have more inquiries because of their size. ------------------------------- U.S. Housing Market Conditions is published quarterly by the U.S. Department of Housing and Urban Development, Office of Policy Development and Research. Andrew M. Cuomo Secretary Michael A. Stegman Assistant Secretary, Office of Policy Development and Research Frederick J. Eggers Deputy Assistant Secretary, Economic Affairs Paul A. Leonard Deputy Assistant Secretary, Policy Development Duane T. McGough Director, Housing and Demographic Analysis Division David E. Shenk Director, Economic Market Analysis Division Katherine L. O'Leary Director, Research Utilization Division Ronald J. Sepanik Deputy Director, Housing and Demographic Analysis Division Bruce D. Atkinson Economist Sue George Neal Economist Randall M. Scheessele Economist Edward J. Szymanoski Economist Vanessa Void-Taylor Research Utilization Specialist Robert R. Callis Bureau of the Census HUD Field Office Economists who contributed to this issue are: New England: John R. Riley Boston Boston, MA: John R. Riley Boston New York/New Jersey: David S. Burns New York Albany-Schenectady-Troy, NY: William Coyner Buffalo Mid-Atlantic: Frances A. Kenney Richmond Washington, DC-MD-VA-WV: Rafiq A. Munir Washington, DC Southeast: Bette L. Almand Atlanta Louisville, KY-IN: Charles P. Hugghins Atlanta Midwest: Joseph P. McDonnell Chicago Ann Arbor, MI: Thomas W. Miesse Detroit Southwest: Linda L. Hanratty Ft. Worth Las Cruces, NM: Linda L. Hanratty Ft. Worth Great Plains: Donald J. Gebauer Kansas City Des Moines, IA: James P. Laakso Omaha Rocky Mountain: James A. Coil Denver Colorado Springs, CO: George H. Antoine Denver Pacific: Robert E. Jolda San Francisco Phoenix, AZ: Robert E. Jolda San Francisco Northwest: Pamela R. Sharpe Seattle Spokane, WA: Sarah E. Bland Seattle ------------------------------- NATIONAL DATA HOUSING PRODUCTION PERMITS Permits for construction of new housing units decreased 2 percent in the fourth quarter of 1996 to a seasonally adjusted annual rate of 1,397,000 units and were 3 percent below the fourth quarter of 1995. One-unit permits, at 1,017,000 units, were 4 percent below the level of the previous quarter and down 6 percent from a year earlier. Multifamily permits (5 or more units in structure), at 313,000 units, were 6 percent above the third quarter and 6 percent above the fourth quarter of 1995. STARTS Construction starts of new housing units in the fourth quarter of 1996 totalled 1,409,000 units at a seasonally adjusted annual rate, 5 percent below the third quarter of 1996, but even with the fourth quarter of 1995. Single-family starts, at 1,091,000 units, were 7 percent lower than the previous quarter and 3 percent below the 1995 rate. Multifamily starts totalled 266,000 units, a statistically insignificant 2 percent below the previous quarter and a statistically insignificant 6 percent above the same quarter in 1995. UNDER CONSTRUCTION Housing units under construction at the end of the fourth quarter of 1996 were at a seasonally adjusted annual rate of 820,000 units, 1 percent lower than the previous quarter but 3 percent above the fourth quarter of 1995. Single-family units under construction at the end of the fourth quarter of 1996 stood at 577,000 units, a statistically insignificant 3 percent below the previous quarter but a statistically insignificant 1 percent above the fourth quarter of 1995. Multifamily units were at 215,000 units, up a statistically insignificant 3 percent from both the previous quarter and the fourth quarter of 1995. COMPLETIONS Housing units completed in the fourth quarter of 1996 at a seasonally adjusted annual rate of 1,416,000 units were down a statistically insignificant 1 percent but up 9 percent above the same quarter of 1995. Single-family completions at 1,135,000 units were unchanged from the previous quarter and 9 percent above the rate of a year earlier. Multifamily completions at 241,000 units were a statistically insignificant 3 percent below the previous quarter but a statistically insignificant 5 percent above the same quarter of 1995. MANUFACTURED (MOBILE) HOME SHIPMENTS Shipments of new manufactured (mobile) homes to dealers were at a seasonally adjusted annual rate of 371,000 units in the third quarter of 1996, which is the same as the previous quarter and 8 percent above the rate of a year earlier. HOUSING MARKETING HOME SALES Sales of new single-family homes totalled 749,000 units at a seasonally adjusted annual rate (SAAR) in the fourth quarter of 1996, a statistically insignificant 6 percent below the previous quarter but a statistically insignificant 10 percent above the fourth quarter of 1995. The number of new homes for sale at the end of December 1996 numbered 327,000 units, down a statistically insignificant 5 percent from the last quarter and down 12 percent from the fourth quarter of 1995. At the end of December, inventories represented a 5.2-months supply at the current sales rates, down a statistically insignificant 2 percent from the previous quarter and down 21 percent from the fourth quarter of 1995. Sales of existing single-family homes reported by the NATIONAL ASSOCIATION OF REALTORS (registered trademark), for the fourth quarter of 1996 totalled 3,950,000 (SAAR), down 4 percent from the third quarter's level and down 1 percent from the fourth quarter of 1995. The number of units for sale at the end of the fourth quarter was 1,650,000, which is 23 percent below the previous quarter but 12 percent above the fourth quarter of 1995. At the end of the fourth quarter, there was a 5.1-months supply of units, 20 percent below the previous quarter but 11 percent above the fourth quarter of 1995. HOME PRICES The median price of new homes during the fourth quarter of 1996 was $144,700, up a statistically insignificant 3 percent from the previous quarter's level and up a statistically insignificant 5 percent from the fourth quarter of 1995. The average price of new homes sold during the fourth quarter of 1996 was $171,100, up 4 percent from the third quarter of 1996 and up 6 percent from the same quarter a year ago. The price adjusted to represent a constant-quality house was $164,900, a statistically insignificant 1 percent below the third quarter of 1996 but up a statistically insignificant 1 percent from the fourth quarter of 1995. The values for the set of physical characteristics used for the constant- quality house are based on 1992 sales. The median price of existing single-family homes in the fourth quarter of 1996 was $117,600, which is 2 percent below last quarter but 3 percent above the fourth quarter of 1995, according to the NATIONAL ASSOCIATION OF REALTORS (registered trademark). The average price of $145,000 was 2 percent below the previous quarter but 4 percent above the fourth quarter of 1995. HOUSING AFFORDABILITY Housing affordability is the ratio of median family income to the income needed to purchase the median-priced home based on current interest rates and underwriting standards, expressed as an index. The NATIONAL ASSOCIATION OF REALTORS (registered trademark) composite index value for the fourth quarter of 1996 shows that families earning the median income have 126.7 percent of the income needed to purchase the median-priced existing home. This figure is 6 percent above the third quarter of 1996 but 2 percent below the fourth quarter of 1995. This increase is the result of a 2-percent fall in the median home price and a 25-basis-point decrease in the interest rate that failed to be offset by a 5-percent drop in median family income during the last quarter. The fixed-rate index increased by 6 percent from the third quarter of 1996 but fell by 3 percent from the fourth quarter of 1995. The adjustable-rate index increased by 6 percent from the previous quarter but decreased by 1 percent from the same quarter a year earlier. APARTMENT ABSORPTIONS There were 53,300 new, unsubsidized, unfurnished, multifamily (5 or more units in structure) rental apartments completed in the third quarter of 1996, up a statistically insignificant 5 percent from the previous quarter and up a statistically insignificant 11 percent from the third quarter of 1995. Of the apartments completed in the third quarter of 1996, 72 percent were rented within 3 months. This absorption rate is up a statistically insignificant 1 percent from the previous quarter and equal to the same quarter the previous year. The median asking rent for apartments completed in the third quarter was $682, which is a statistically insignificant 1 percent below the previous quarter but a statistically insignificant 3 percent higher than a year earlier. MANUFACTURED (MOBILE) HOME PLACEMENTS Manufactured homes placed on site ready for occupancy in the third quarter of 1996 totalled 300,000 at a seasonally adjusted annual rate, nearly equal to the level of the previous quarter and a statistically insignificant 3 percent below the third quarter of 1995. The number of homes for sale on dealers' lots at the end of the third quarter totalled 117,000 units, 14 percent above the previous quarter and 39 percent above the same quarter of 1995. The average sales price of the units sold in the third quarter was $39,000, up a statistically insignificant 1 percent from the previous quarter and 6 percent higher than the 1995 price. BUILDERS' VIEWS OF HOUSING MARKET ACTIVITY The National Association of Home Builders (NAHB) conducts a monthly survey focusing on builders' views of the level of sales activity and their expectations for the near future. NAHB uses these survey responses to construct indices of housing market activity. (The index values range from 0 to 100.) The fourth-quarter value for the index of current market activity for single-family detached houses stood at 57, down 5 points from the third-quarter level of 62 but up 1 point from 1995's fourth quarter. The index for future sales expectations, 61, was down 3 points from the third-quarter value and down 1 point from 1995's level. Prospective buyer traffic had an index value of 41, which is 5 points below the third-quarter value and 1 point below 1995's fourth quarter level. NAHB combines these separate indices into a single housing market index that mirrors the three components quite closely. In the fourth quarter, this index stood at 53, which is 5 points below the third-quarter level and equal to the value from 1995. HOUSING FINANCE MORTGAGE INTEREST RATES Mortgage interest rates for all categories of loans declined from the previous quarter. The contract mortgage interest rate for 30- year, fixed-rate, conventional mortgages reported by Freddie Mac was 7.69 percent in the fourth quarter, 47 basis points lower than the previous quarter but 35 basis points higher than the same quarter of 1995. Adjustable-rate mortgages in the fourth quarter were going for 5.56 percent, 33 basis points below the previous quarter and 9 basis points below the same quarter of 1995. Fixed- rate, 15-year mortgages, at 7.20 percent, were down 48 basis points from last quarter but up 33 basis points from the same quarter of the previous year. The FHA rate fell 33 basis points during the quarter and was 50 basis points above the same quarter in 1995. FHA 1-4 FAMILY MORTGAGE INSURANCE Applications for FHA mortgage insurance on 1-4 family homes were received for 238,700 (not seasonally adjusted) properties in the fourth quarter of 1996, down 4 percent from the previous quarter but up 11 percent from the fourth quarter of 1995. Endorsements or insurance policies issued totalled 209,500, down 5 percent from the third quarter of 1996 but up 39 percent from the fourth quarter of 1995. Endorsements for refinancing were 18,100, down 24 percent from the third quarter of 1996 and 3 percent from a year earlier. PMI AND VA ACTIVITY Private mortgage insurers issued 240,500 policies or certificates of insurance on conventional mortgage loans during the fourth quarter of 1996, down 16 percent from the third quarter and down 10 percent from the fourth quarter of 1995; these numbers are not seasonally adjusted. The U.S. Department of Veterans Affairs reported the issuance of mortgage loan guaranties for 68,700 single-family properties in the fourth quarter of 1996, down 13 percent from the previous quarter but up 9 percent from the fourth quarter of 1995. MORTGAGE ORIGINATIONS BY LOAN TYPE, 1-4 FAMILY UNITS The total value of mortgage originations for 1-4 family homes was $218 billion in the third quarter of 1996, unchanged from the second quarter of 1996. Uninsured mortgage volume grew 1 percent; FHA-insured mortgages increased 1 percent; privately insured mortgages decreased 3 percent; and VA-guarantied mortgages decreased by 19 percent. The overall increase from the third quarter of 1995 was 15 percent. FHA mortgage volume increased 34 percent, VA-guarantied mortgages increased 12 percent, and privately insured mortgages rose 3 percent while the volume for uninsured mortgages increased 16 percent. Market shares changed very little during the third quarter of 1996 or from the third quarter of 1995. RESIDENTIAL MORTGAGE ORIGINATIONS BY BUILDING TYPE Residential mortgage originations totalled $230.7 billion in the third quarter of 1996, down 1 percent from the second quarter of 1996 but up 16 percent from the third quarter of 1995, and nearly identical to the single-family mortgage pattern. The financing volume for multifamily (5+) units totalled $12.7 billion in the third quarter, down 1 percent from the previous quarter but up 28 percent from the third quarter of 1995. MORTGAGE ORIGINATIONS BY LENDER TYPE, 1-4 FAMILY UNITS During the third quarter of 1996, commercial banks with a volume of $60.2 billion and a market share of 27.6 percent and mutual savings banks with a volume of $9.6 billion and a market share of 4.4 percent show increases from the second quarter of 1996 and the third quarter of 1995. However, the second and third quarter data are based on a newly introduced sample design that calls into question any comparisons of current data with earlier data. More data from the newly introduced sample design needs to be collected before the series can be used with confidence for time-to-time comparisons. Volume data for other lender types are unaffected; however, comparisons of their market share data across time are affected by this question of comparability. Mortgage companies decreased their volumes during the third quarter of 1996 to $116.7 billion, a 9-percent decrease from the second quarter of 1996 but an 11-percent gain over the third quarter of 1995. Their market share is now estimated to be 53.5 percent, and they continue to dominate the market. Savings and loans originated $30.4 billion in mortgages, a 13-percent decrease from the second quarter of 1996 but an 11-percent increase from the third quarter of 1995. Their market share in the third quarter is now estimated to be 13.9 percent. Volumes and market shares for "other lenders" continue to be quite small. DELINQUENCIES AND FORECLOSURES Total delinquencies were at 4.16 percent at the end of the third quarter of 1996, 4 percent below the second quarter and 6 percent below the third quarter of 1995. Ninety-day delinquencies were at 0.59 percent, down 6 percent from the second quarter of 1996 and down 23 percent from the third quarter of 1995. During the third quarter of 1996, 0.33 percent of loans entered foreclosure, down 3 percent from both the previous quarter and the third quarter of 1995. HOUSING INVESTMENT RESIDENTIAL FIXED INVESTMENT AND GROSS DOMESTIC PRODUCT Residential Fixed Investment (RFI) for the fourth quarter of 1996 was $312.2 billion, equal to the value from the third quarter of 1996 but up 5 percent from the fourth quarter of 1995. As a percentage of the Gross Domestic Product, RFI was 4 percent, down 0.1 percentage point from the previous quarter but equal to the value from a year ago. HOUSING INVENTORY HOUSING STOCK As of the fourth quarter of 1996, the estimate of the total housing stock, 114,555,000 units, was equal to the level of the third quarter of 1996 and 1.4 percent above 1995's level. The number of occupied units was up a statistically insignificant 0.1 percent from last quarter but was 0.9 percent above the same quarter in 1995. Owner-occupied homes were equal to the level of the third quarter of 1996 and 1.4 percent above the fourth quarter of 1995. Rentals declined a statistically insignificant 0.4 percent from last quarter and declined a statistically insignificant 0.1 percent from 1995. Vacant units fell a statistically insignificant 0.9 percent from last quarter but rose 5.3 percent from 1995. VACANCY RATES The 1996 fourth-quarter national rental vacancy rate, at 7.7 percent, was down a statistically insignificant 0.3 percentage point from last quarter and equal to the level of 1995. The homeowner vacancy rate, at 1.7 percent, was unchanged from last quarter but up a statistically insignificant 0.1 percentage point from 1995. HOMEOWNERSHIP RATES The national homeownership rate was 65.4 percent in the fourth quarter of 1996, down a statistically insignificant 0.2 percentage point from the third quarter but up 0.3 percentage point from the fourth quarter of 1995. The homeownership rate for minority households decreased a statistically insignificant 0.5 percentage point from the third quarter but increased 0.7 percentage point from 1995. The rate for young households of 58- percent homeownership was up a statistically insignificant 0.2 percentage point from last quarter's rate and a statistically insignificant 0.1 percentage point from 1995's fourth quarter. ------------------------------- REGIONAL ACTIVITY The following summaries of housing market conditions and activities have been prepared by economists in the U.S. Department of Housing and Urban Development's (HUD's) field offices. The reports provide overviews of economic and housing market trends. Each regional report also includes a profile of a selected housing market that provides a perspective of current economic conditions and their impact on the local housing market. The reports are based on information obtained by HUD economists from State and local governments, housing industry sources, and from their ongoing investigations of housing market conditions carried out in connection with the review of HUD program applications. NEW ENGLAND New England added 73,000 jobs in the 12 months ending November 1996, a 2.1-percent increase over the same period a year ago. Service-producing industries led the way, creating 80,900 jobs, but this gain was partially offset by the decline of 7,900 jobs in goods-producing industries. Massachusetts had the largest share of the increase, 39,000 new jobs. Connecticut ranked second with more than 20,000 new jobs, despite cutbacks in the defense and insurance industries. Maine, New Hampshire, Rhode Island, and Vermont also reported net increases in employment over the past 12 months. Since the employment downturn bottomed out in late 1992, Connecticut has regained 65,000 of the 160,000 jobs previously lost. Hartford saw its unemployment rate decline from 5.4 percent to 4.8 percent. In the New London area, job losses in manufacturing have been offset by gains in the casino business. The Mohegan Sun Casino, which recently opened in Montville near New London, has 5,000 employees. The unemployment rates for all of the New England States are below the national average. Massachusetts and New Hampshire had the lowest rates, both 3.9 percent, in November 1996. Maine's rate of 4.2 percent was not far behind. Connecticut's rate was 5.1 percent, down from 5.6 percent in November 1995. Photonics, the practical use of light, such as with laser surgery and laser machinery, is the emerging industry in New England. Massachusetts, New Hampshire, and Connecticut are the top three States in the Nation in this area. Connecticut has 11,000 persons employed in photonics firms, most of which have fewer than 50 employees. Home construction in the region, as measured by single-family building permits, showed continued strength through the fourth quarter of 1996. For the year, permits were issued for 35,575 units, a 3.7-percent increase over the same period in 1995. Maine had the greatest gain, 8.4 percent. Portland, the largest metropolitan area in Maine, registered a 12-percent increase in single-family permits. Connecticut, Massachusetts, and Vermont also reported modest increases in single-family permits from 1 year ago. New Hampshire showed a small decline. Existing home sales held steady in the region. Connecticut sales declined slightly during 1996 compared with 1995. The sales housing market in Massachusetts is doing significantly better, with the annual sales volume at 83,100 as of the third quarter compared with 68,100 in the third quarter of the previous year. New England rental housing markets are tightening as the economy expands. The hottest markets are in eastern Massachusetts, southern New Hampshire, and southeastern Maine. Absorption of new rental housing in the Greater Boston area has continued at a strong pace. Apartment vacancy rates in communities along Route 128 are still 2 percent or less. Steady economic growth coupled with modest apartment construction have kept pressure on the existing rental stock. The number of multifamily housing units permitted in New England in 1996 increased 25 percent. In Massachusetts multifamily permit activity was up almost 19 percent from 1,911 to 2,269 units; New Hampshire experienced a jump from 376 to 1,023 units. Only Connecticut and Maine recorded declines. Boston, Hartford, Manchester, and Providence all reported increases in multifamily permit activity compared with 1995 levels. Leggat McCall Retirement Properties announced plans to develop about 1,700 units of housing for seniors in New England during the next 2 years. The majority of the units will be in Massachusetts. The target market will be seniors with incomes between $15,000 and $30,000. SPOTLIGHT ON BOSTON, MASSACHUSETTS The economy of the Boston metropolitan area continues its slow improvement. Employment during the 12 months ending in October 1996 increased almost 1 percent, reaching a level of 1,852,800 jobs. Local economic forecasts expect this modest rate of growth to continue in 1997. The latest unemployment figures support the positive change in the Boston area's economic climate. The area's unemployment rate declined substantially to 3.2 percent as of October 1996. The largest job gains have been in the services and financial sectors. The financial sector has benefitted from a State law that provided a $40 million tax break for mutual fund companies. Local financial corporations have made major commitments on commercial properties in downtown Boston and plan to expand. Employment gains are also expected in the biomedical research and computer software industries. However, downsizing continues by a number of major defense-related employers such as Raytheon. Manufacturing comprises only about 12 percent of employment, down from 20 percent in the early 1980s. The Boston metropolitan area housing market has steadily improved since 1992. Existing home sales have been extremely strong throughout the metropolitan area, with many people trading up to take advantage of low interest rates. Buoyed by an improving economy, the median sales price of an existing home increased from $171,100 in 1992 to $179,000 in 1995. Home construction continued to improve in 1996. Single-family building permits in the Boston area increased by 7.4 percent to 5,943 units. The number of speculatively built homes has increased for the first time since the late 1980s. However, custom construction for predetermined buyers remains the norm, with most new homes priced from $275,000 to $325,000. As a result of increased demand inside Route 128, prices of improved lots have increased 50 percent during the past 2 years. A standard improved lot in this submarket now sells for $100,000 to $250,000. Outside Route 128, lot prices are $75,000 to $100,000. Construction has begun on a new commuter line from the South Station section of Boston to communities in southeastern Massachusetts. The line, which is expected to begin operation in 1998, has stimulated considerable interest in commercial and residential development near the planned stations. The Boston rental housing market has tightened due to increased demand over the past 2 years and little significant development over the past 7 years. Low apartment vacancy rates (typically less than 3 percent) throughout the area have begun to spur the planning and development of new units. Permits were issued for 1,342 multifamily units in 1996, a 42.3-percent increase over 1995. With the end of rent control in Boston, Cambridge, and Brookline, rents have increased significantly. Many apartment complexes in Cambridge are reporting almost 100-percent occupancy, with rents ranging from $1,000 to $2,000 for two-bedroom units. The rise in rents in the metropolitan area has made development of new rental housing financially attractive. Downtown rental housing is becoming increasingly attractive to developers. Students at Boston's colleges and universities have doubled up to pay higher rents, putting pressure on the downtown rental market. Developers are expressing interest in meeting this demand by converting older manufacturing buildings to rentals. NEW YORK/NEW JERSEY Nonagricultural employment in New York State increased by 58,200 jobs, or 0.7 percent, between November 1995 and November 1996, led by the construction and services sectors. New Jersey employment increased by 34,500 jobs, or 1.0 percent, during the same period. New York State's unemployment rate was 6.0 percent in November 1996, down from 6.3 percent a year earlier. New Jersey's unemployment rate was 6.2 percent in November 1996, also down by 0.3 percentage points from November 1995. Employment increased by 29,500 jobs in New York City, or 0.9 percent, between November 1995 and November 1996. The unemployment rate for the city was 8.8 percent in November 1996, up from 8.2 percent in November 1995. New York City's estimated 1995 population was 7,312,000, a slight increase of about 15,000 persons since 1990. The population would have declined were it not for a substantial increase in immigration. A recent report by New York City's Department of Planning indicated that 563,000 immigrants arrived between 1990 and 1994. Almost two-thirds of these new residents have located in Brooklyn and Queens, making an already tight market tighter. The rental housing market is strong throughout the New York City metropolitan area. Hoboken and Jersey City, particularly the waterfront areas, have recently experienced substantial increases in rental housing construction. The demand for housing in these communities has been stimulated by ongoing neighborhood revitalization, much lower rents, and easy accessibility to Manhattan. According to a recent report of the Real Estate Board of New York, residential condominium sales in Manhattan were 32 percent higher during the third quarter of 1996 than the third quarter of 1995. Several brokerage firms reported that third-quarter 1996 cooperative housing sales were the highest ever in Manhattan. The market for lower priced cooperatives ($25,000 for a studio apartment to $75,000 for a three-bedroom unit) is beginning to experience increased activity in such areas as Flatbush and Sheepshead Bay in Brooklyn. The recovery continues in New York City's commercial real estate market. The sales price of Class A office buildings in Manhattan is averaging about $200 per square foot. Rents have increased modestly to an average of $40 per square foot, and landlords are offering fewer concessions than previously. The vacancy rate fell to 8.9 percent in November 1996 from 10.4 percent in November 1995. Office space in Brooklyn and Queens is in short supply, and, in many instances, is commanding higher rents than in Lower Manhattan. The hotel industry in Manhattan is particularly robust, with occupancy in 1996 at 82 percent, up from 79 percent in 1995. Room rates increased to an average of $170.50 a night, up from $155.50 in 1995. At least three new hotels are scheduled to begin construction in Manhattan in 1997. In New York State, single-family building permits totalled 20,225 units in 1996, a slight 1-percent decline from 1995 levels. However, home sales on Long Island increased 11.6 percent during the first 9 months of 1996, and single-family building permits for 1996 were also up 11.6 percent over 1995. The improvement is attributable to a stronger than anticipated local economy. New York State multifamily housing construction activity in 1996 doubled from the previous year. Permits were issued for 15,763 units, the highest level in the past 7 years. The New York City metropolitan area accounted for 55 percent of multifamily units due in large part to the strong rental market in Manhattan. In New Jersey single-family permit activity (21,107 units) was up 14.9 percent in 1996, and multifamily housing (3,457 units) was up close to 9 percent. SPOTLIGHT ON ALBANY-SCHENECTADY-TROY, NEW YORK The six-county Albany-Schenectady-Troy metropolitan area experienced a slight 1.4-percent growth in population between 1990 and 1995, compared with a 0.8-percent increase for New York State. During this period total population in the metropolitan area increased from 861,400 to 873,400 persons, primarily due to growth in Saratoga County. In the 12 months ending November 1996, nonagricultural employment in the metropolitan area declined by approximately 3,000 jobs, largely the result of reductions in State government, although employment losses also occurred in manufacturing. There were modest increases in construction employment, transportation and public utilities, and wholesale and retail trade. The Albany area has a well-educated and highly skilled workforce, due to the presence of the State government. Approximately one in four jobs in the metropolitan area is in government. Manufacturing currently comprises less than 10 percent of the employment base within the metropolitan area. As of November 1996, the unemployment rate for the area had declined to 3.7 percent, primarily reflecting losses in the workforce. Between 1990 and 1994, single-family building permits in the Albany area held fairly steady at about 2,350 homes a year. The majority of new housing is custom-built homes priced above $175,000. In response to declining demand for new units, due to regional economic conditions and recent job losses in the public sector, single-family permits have dropped more than 30 percent to 1,600 homes annually in the past 24 months. Housing development is most prevalent in suburban townships of Albany, Rensselaer, and Saratoga counties. Existing home sales in the Albany area have declined since 1993, according to New York State Association of Realtors (registered trademark) data. From the third quarter of 1995 to the third quarter of 1996, the median sales price of an existing single-family home fell by 2.2 percent to $106,100. Multifamily building activity in the Albany area has held fairly steady since 1990, averaging 600 units annually. Recent construction has been largely in Albany, Rensselaer, and Saratoga counties. The rental market is balanced. Recent rent increases for newer rental properties in suburban submarkets have been in the 2- to 3-percent range; these projects generally have high occupancy levels. Some of the older rental properties have vacancy rates in excess of 10 percent. MID-ATLANTIC Mid-Atlantic employment in the first 11 months of 1996 increased by less than 1 percent. In Virginia the 48,000 jobs added in the first 11 months, a 1.6-percent gain, were due to rapid expansion of high- technology business services in Northern Virginia. The four major metropolitan areas of Philadelphia, Pittsburgh, Baltimore, and Washington, D.C., had employment gains of less than 1 percent through the first 11 months. Delaware employment grew by 2.5 percent, helped by the retention of automobile-production jobs at both Chrysler and General Motors. November 1996 unemployment rates hit a 6-year low in both Maryland (4.4 percent) and Virginia (3.8 percent). Pennsylvania's unemployment rate of 4.5 percent represents a significant decline from the November 1995 rate of 5.8 percent. West Virginia's rate of 6.8 percent also represents a continuing steady decline. In Center City, Philadelphia, two leading companies, SmithKline Beecham and Independence Blue Cross, announced downtown expansions that will add 700 jobs. Planning is under way in Baltimore for development of an 800-room luxury hotel and retail complex in the Inner Harbor. This will be the city's biggest and first major hotel development since 1988. New home production in the Mid-Atlantic has held steady. Single- family building permits totalled 96,432 units in 1996. None of the States or major markets showed much change from 1995 permit levels. Existing home sales increased 11 percent in the Baltimore area through November, led by Carroll County (16 percent), Baltimore City (13 percent), and Baltimore County (11 percent). Sales in Virginia for 1996 are expected to be about the same as 1995. In the Pittsburgh area, the 6-percent increase in sales in 1996 included a gain in Allegheny County. Rental housing markets continue to tighten and production has increased from the low levels in the early part of the decade. Apartment production, as measured by building permits, increased 14.5 percent to 20,234 units from 1995 to 1996. Pennsylvania's multifamily permit activity was up 42 percent from very low 1995 levels, including a 63-percent increase to 2,162 units in the Philadelphia area. Demand for downtown residential rentals in Philadelphia is strong. The Philadelphia HUD Office is processing 3 multifamily housing applications, with a total of 451 units, for FHA mortgage insurance, and 3 other projects are in the planning stages. The Pittsburgh rental market continues to improve, with suburban projects averaging vacancy rates of less than 3 percent. In Virginia the number of multifamily permits increased 19 percent to 10,746 in 1996. The Baltimore area rental market has been relatively soft since 1990, and the recovery has been stymied by a sluggish economy. Reduced vacancies and fewer rent concessions have been noted. SPOTLIGHT ON WASHINGTON, D.C. Cutbacks in Federal spending reduced employment growth from more than 5 percent a year in the late 1980s to less than 1 percent in 1990 and 1991. Employment gains from 1992 to 1995 ranged from 1.4 to 1.9 percent annually. Based on data for the first 11 months of 1996, employment growth slowed again to less than 1 percent as government employment declined by 15,600 jobs. The District of Columbia has been particularly hard hit by both government and private-sector job losses in recent years, while suburban job gains have accrued primarily in the Virginia suburbs. Northern Virginia's healthy job growth of 2.3 percent (22,000 jobs) in 1996 contrasts with the static picture in suburban Maryland. Northern Virginia's aggressive economic development strategy and a competitive edge in lower taxes have paid off with significant job gains in high-technology business services. Participation in telecommunications by companies like MCI and LCI has spurred expansion in the utility sector. Job gains in Manassas (Prince William County) have been spurred by the new computer chip plant, Dominion Semiconductor. The plant, scheduled to open in late 1997, is already generating secondary development by equipment and service providers. Reston (Fairfax County) is projected to add 3,000 jobs in 8 years to Oracle's new headquarters; BDM International will move 1,000 employees to new offices in Reston. The two headquarters will generate more than 1 million square feet in office space expansion in 1997. By early December 1996, office vacancy rates in the Washington metropolitan area had dropped to less than 8 percent. There was a 9-percent vacancy rate in the District, an 11-percent rate in Maryland, and a less than 5-percent rate in Northern Virginia. The current construction level of 3.4 million square feet represents less than 1 year's absorption and is nearly evenly divided between the District (1.8 million) and Northern Virginia (1.3 million). Average rates in the District for new space, at nearly $36 per square foot, were one-third higher than suburban rents. Job gains in outlying suburban areas have stimulated development and growth of edge cities beyond the beltway, pushing residential development into third-ring suburban counties. Both the Frederick and Hagerstown, Maryland, areas are benefitting from the movement of jobs to peripheral locations, while Northern Virginia's growth follows both major highway and airport corridors. The sales housing market continued to show gradual improvement in 1996. New and existing home sales were up 3 and 4 percent, respectively, over 1995 totals. However, existing home sales slowed in the second half of 1996, and 1997 forecasts are cautious regarding continued market improvement. On the Maryland side, new home sales were up 3 percent and existing home sales increased 5 percent. Montgomery and Prince George's counties, which account for more than half of all activity, showed only slight gains. Outlying Frederick County reported a slight drop in existing home sales, but a 12-percent gain in new activity. On the Virginia side, new home sales remained steady, while existing home sales increased 3 percent. The high-volume Arlington-Alexandria-Fairfax submarket remained steady, while Loudoun County reported a 14-percent increase in sales. Prince William County held steady in new home sales, while existing home sales were up 6 percent. The Washington area's new home production, as measured by building permits, is the fourth-largest market nationally, with 23,184 units permitted in 1996. While single-family permit activity in 1996 was about equal to 1995 levels, production was up 7 percent in Northern Virginia due largely to increased volume in the outlying counties. New homebuyers have a wide inventory from which to choose and are still able to obtain builder concessions in the form of more amenities or lower closing costs. The southern Maryland area (Charles and Calvert counties) is experiencing greater growth due to the transfer of 6,800 military and civilian personnel to the Patuxent River Naval Air Station. Both Charles and Prince George's counties are evaluating measures to halt or slow townhouse development. The Washington area rental market is generally balanced. New apartments in Tysons Corner, Reston, Alexandria, Gaithersburg, and Rockville are being quickly absorbed at a typical pace of 30 units per project a month. The number of multifamily units permitted in 1996 (7,892 units) was up almost 28 percent. Suburban rental vacancy rates range from 5 percent in Northern Virginia to 6.5 percent in Prince George's County. SOUTHEAST/CARIBBEAN Nonagricultural employment growth in the Southeast kept pace with the national growth rate of 2.1 percent between November 1995 and November 1996. Georgia, Florida, and South Carolina exceeded this figure, but in Alabama and Mississippi, the rate of growth was less than 1 percent. Florida's tourism industry had an excellent year; a record 42 million persons visited the State in 1996, 2 percent more than the previous year. The decline of the textile and apparel industries continues to be a drag on the economy of North Carolina. The Southeast's November unemployment rate of 4.9 percent declined from the November 1995 level in every State except South Carolina. The labor supply is tight in many areas of the Southeast. Disney is holding job fairs in Orlando and reports difficulty filling positions. Jacksonville's building contractors face a shortage of skilled workers, resulting in delays, and some companies find it necessary to turn down work because of the labor shortage. The unemployment rate for Puerto Rico has declined, but still remains high, at 12.2 percent. Single-family construction in the Southeast, as measured by building permits, was up 8.2 percent (295,896 units) in 1996 compared with 1995's volume. The biggest percentage increase was in South Carolina, where the number of permits increased by almost 17 percent to 22,133 units, led by the Greenville-Spartanburg and Columbia areas. Alabama also had a big percentage increase (13.3), with 14,466 units permitted in 1996. The smallest increase in single-family permit activity was in Tennessee (2.7 percent), where a 13-percent decline in Memphis was offset by a substantial 17- percent gain to 10,039 units in the Nashville area. The Atlanta area remains the national leader among metropolitan areas, with 37,523 single-family units permitted in 1996, up 7.4 percent from a year ago. Birmingham home sales for 1996 reached a record level of 9,238, surpassing the previous high of 8,527 homes sold in 1993 when mortgage rates hit a 25-year low. The rise in home sales in 1996 occurred despite a steady rise in 30-year fixed-rate conventional mortgages from 7 percent in February to 7.8 percent in December. In the Caribbean, sales volume, as measured by the number of FHA loan applications in the first 11 months of 1996, increased 11.3 percent to 22,501 units. Multifamily permit activity in the Southeast in 1996 was slightly below the 1995 level, but the total volume of 96,383 units led all the other regions of the Nation. South Carolina and Tennessee experienced the biggest percentage increases, 40 and 60 percent, respectively. The increase in South Carolina was largely the result of activity in Greenville and Myrtle Beach. In Tennessee in 1996 the number of units permitted in Memphis (3,563 units) was up 86 percent, and in Nashville activity more than doubled to 5,557 units. Florida had close to a 14-percent decline in multifamily activity in 1996, but still recorded the highest volume (33,551 units) in the Southeast. No rental markets in Florida are considered soft at this time. However, recent production levels are a cause for concern in the Jacksonville area, where more than 3,000 rental units will have been completed from mid-1996 to mid-1997. In the Fort Lauderdale area, rents were flat between February and August 1996, which, combined with the increases in multifamily production over the past several years, may be an indication of a weakening rental market. In Georgia multifamily housing activity in 1996 declined 11 percent to 15,447 units. In Atlanta multifamily activity in 1996 fell by 18 percent to 10,739 units from the year-earlier total due to an excessive pace of construction in 1995 in many of the area's submarkets. Apartment occupancy remained below 90 percent in the Augusta area, which is still suffering from cutbacks at the Savannah River Plant. An additional 875 jobs are to be eliminated in January at this facility. Occupancy has also declined in the Macon area. A recent survey of apartment units along the Mississippi Gulf Coast indicates an increase in the vacancy rate to about 10 percent. The rental housing market in North Carolina continues to show strength. Multifamily permit activity in 1996 totalled 14,527 units, the best year over the past 7 years. In August 1996 there were 7,500 units under construction or proposed for the Research Triangle area. However, in response to the large pipeline, building permits declined by 20 percent in 1996. Apartment construction in Raleigh and Durham exceeds current requirements, but because of the rapid growth in the area, the surplus is not expected to last long. In the Charlotte-Gastonia area, multifamily activity in 1996 (5,943 units) was up almost 60 percent over 1995. As a result the apartment vacancy rate in this area is expected to exceed 8 percent in the near future. SPOTLIGHT ON LOUISVILLE, KENTUCKY Since 1990 the Louisville area's nonagricultural wage and salary employment has increased by an average of 2.1 percent annually. For the 12 months ending in November 1996, nonagricultural employment averaged 536,850 jobs, or 1.9 percent above the preceding 12-month period. Of the gain of 11,400 jobs, 7,000 were in the services sector and 3,200 were in trade. Manufacturing jobs declined by 400 over the period. The largest private employers in the Louisville area are United Parcel Service (UPS)(14,400 jobs), General Electric Appliances (9,750 jobs), and Ford Motor Company (8,600 jobs). Capitalizing on the fast delivery service provided by the UPS national air service hub, the area has become a popular location for computer repair facilities. Local estimates anticipate there will be 2,000 to 2,500 computer repair jobs in the area by the end of 1997. A locally prepared index of payroll growth in metropolitan areas ranked Louisville 37th among the largest 75 metropolitan areas in 1996. Since 1993 the area has slipped from 15th place on this index, as other areas that were harder hit by the recession have rebounded more vigorously. In contrast, the Louisville economy has had a more moderate rate of growth. The population of the Louisville metropolitan area is approaching 1 million; the last estimate by the U.S. Bureau of the Census placed the area's population at 987,102 as of July 1, 1995. Jefferson County, with 672,918 residents, has just over two-thirds of the area's population. Most of the growth, however, has occurred in the other six counties of the metropolitan area. The largest increase, more than 8,000 persons, has been in Bullitt County. Multifamily housing authorized by building permits in the Louisville metropolitan area averaged 1,853 units a year from 1983 through 1989 and 1,018 units annually from 1990 through 1996. The 1996 total of 1,426 units was the highest since 1987. A recent survey of Jefferson County's large apartment projects by the appraisal firm of Chapman and Bell found occupancy above 95 percent. Building permit data indicate that growth in the county's multifamily housing stock has been at a modest rate during the 1990s, averaging 663 units per year. The number of single-family homes authorized by building permits for the metropolitan area averaged 2,375 units during the 1980s and 4,542 units during the 1990s. In 1996 permits were issued for 5,024 single-family units, a near record level. Realty Research Corporation, which monitors homebuilding, reports that demand is keeping up with production, thereby creating a balanced market. Increasing land costs are prompting the development of patio homes and zero-lot-line developments. Statistics provided by the Louisville Board of Realtors (registered trademark) show that the average sales price of the 7,684 houses sold during the first 11 months of 1996 was $121,000. This figure was slightly more than 4 percent above the average for 1995. MIDWEST The Midwest economy continued to perform well in 1996. All States in the region reported employment gains through November and unemployment rates below the national average. Durable-goods manufacturing remains strong, but construction, retail trade, and business and health services have provided the largest number of new jobs. Home construction was up in all States. Based on the House Price Index from the Office of Federal Housing Enterprise Oversight, housing prices for the 12 months ending September 1996 appreciated the fastest in the Nation. Private surveys of business conditions showed local economies expanding throughout the year in the Chicago, Detroit, Cleveland, Cincinnati, Milwaukee, Grand Rapids, and Rockford metropolitan areas. Hiring plans for the first quarter of 1997 are stronger in the Midwest than a year earlier, particularly in finance, trade, and services. Illinois and Michigan led the region in employment growth, each adding about 90,000 jobs in the 12 months ending November 1996. A $722 million expansion of Chicago's Midway Airport is expected to double employment near the airport and increase personal income by $1.6 billion over the next 10 years. Detroit's economy will receive a boost from construction of three casinos approved by Michigan voters in November, which are expected to add about 9,000 jobs. In northwest Indiana three casino openings since June contributed to a strong 10-percent gain in services employment and helped reduce the unemployment rate in the Gary area to 3.8 percent in November. All major industry sectors gained employment in Minnesota and Wisconsin, where the unemployment rate has stayed below 4 percent in both States for the past 2 years. Existing home sales in the region continued strong in 1996. Third- quarter sales were at an 871,000-unit annual rate, 3 percent above the third quarter of 1995 and close to the Midwest sales record of 884,000 homes annually as of second quarter 1994. Michigan's booming economy helped boost home prices 9.4 percent in the 12- month period ending September 1996, the second-highest price appreciation in the country. Indiana and Wisconsin had the next largest price appreciation in the region, each up 5.7 percent. Healthy local economies and favorable mortgage rates boosted single-family home construction in the region to its highest level since 1978. In 1996 single-family permits were issued for 187,992 units, an increase of 9.6 percent compared with a year earlier. Activity was up in all States of the region, led by Indiana's 11- percent increase to 30,662 units. Michigan and Ohio reported the largest number of single-family permits, 41,937 and 36,031 units, respectively. Southeast Michigan (Detroit, Flint, and Ann Arbor metropolitan areas) saw a record year for homebuilding, according to the local builders' association; in 1996 permits were issued for 21,671 single-family units, 11 percent above 1995. Chicago's sales housing market is strong. Almost 25,000 single- family units were permitted in the metropolitan area in 1996. Existing home sales in the city were up 12 percent to 49,460 units through November 1996, while home sales in suburban Cook County increased by 7 percent over last year. Chicago's robust market is spurring construction of new homes in the downtown area. In the South Loop, Draper and Kramer Incorporated are developing a 330- unit town-home development adjacent to 2,000 rental units, which they rehabilitated with a $41 million FHA-insured loan. The townhomes are planned to sell for $178,000 compared with an average price of around $200,000 for similar housing in other parts of downtown. Chicago's HUD Office led the Nation for the second consecutive fiscal year, approving 36,984 FHA-insured homes in 1996. Continuing to benefit from a strong economy, Minneapolis-St. Paul area builders reported that home construction in 1996 was up 8 percent over last year. One builder reported steady growth in sales of new homes in 1996, and expects sales to double in 1997. Existing home sales in the metropolitan area in 1996 were up 11 percent over 1995, and the median sales price increased 7 percent to $109,500. Based on data from the Ohio Association of Realtors (registered trademark), 173,800 existing homes were sold in the State during the 10 months ending in October 1996, 10 percent above the 1995 volume for the comparable period, and the highest level in the past 6 years. In Columbus Affordable Housing Associates reported that 375 new homes priced between $85,000 and $126,000 sold well. Another 400 homes are under construction in the city, and the developer plans to build 600 more during the next 3 years. The Cincinnati Homebuilders Association reported that new home sales exceeded expectations at the first annual CITIRAMA home show in October. All but 1 of the 13 detached, single-family homes were sold at prices ranging between $120,000 and $169,000. The city donated the land and will abate homeowner property taxes for the next 15 years. The strong market response to downtown sales housing has encouraged Cincinnati to offer more city-owned lots for single- family development at next summer's home showcase. New home sales in the Madison, Wisconsin, area were down from last year, but activity varied widely by price range. One builder reported that sales of new homes priced between $125,000 and $180,000 sold particularly well in 1996, while sales of higher priced homes ($230,000 to $270,000) were way down. To stimulate sales a builder of luxury homes reduced prices by 5 percent, and another builder of condominiums will shift to less expensive $130,000 to $150,000 units. Midwest rental markets remain generally sound, with apartment occupancy in the 93- to 97-percent range in the fourth quarter of 1996. Multifamily housing production, which slowed in the first half of 1996, strengthened in the fall to finish the year well ahead of last year's strong performance. Permits were issued for 62,105 units in the Midwest region in 1996, almost 10 percent above last year's total. Ohio (13,192 units), Michigan (9,586 units), and Illinois (13,702 units) all recorded substantial increases in the number of multifamily units permitted in 1996. Indianapolis' rental market is holding up well in the face of increased construction activity. Fourth-quarter occupancy was 94 percent, unchanged from the previous quarter. About 1,900 apartment units entered the market in 1996 and another 2,900 units will be completed in 1997, well above the 540-unit annual average between 1992 and 1994. Builders have begun to cut back, and the number of multifamily housing units permitted in 1996 is down 17 percent from 1995. In Madison, Wisconsin, absorption of several thousand new units remains strong, but rent increases in existing projects have slowed and concessions are now more common. The local apartment association reported that more existing projects are offering 1 month's free rent or a reduced security deposit. Apartment occupancy in the metropolitan area is 93 percent currently, slightly below 94 percent in 1995. Cleveland's downtown apartment market has continued to improve. The city's recent survey of 1,500 market-rate rental units showed a 7.7-percent vacancy rate. There is increased developer interest in converting older office buildings to apartments in the Playhouse Square District. Columbus' third-quarter apartment vacancy rate was 3.8 percent, according to a survey of 105,164 rental units by the Danter Company. This vacancy rate was down from 4.7 percent in 1995. Minneapolis-St. Paul's healthy economy and low level of apartment construction have kept the rental vacancy rate in the metropolitan area close to 3 percent for the past several years. Multifamily housing production in the Twin Cities area in 1996 was down 22 percent compared with 1995's volume. Chicago's rental market is strong overall. In 1996 the number of multifamily units permitted in the metropolitan area increased 21 percent to 9,332. Apartment occupancy is currently between 95 and 97 percent. However, in west Du Page County rent concessions in luxury apartments are becoming more widespread. About 1,000 units are in initial rentup in the Aurora area, with another 2,500 units expected on the market in 1997. SPOTLIGHT ON ANN ARBOR, MICHIGAN Ann Arbor's strong economy is due in great part to the University of Michigan and the automobile supply companies servicing nearby Detroit. With more than 31,000 employees, the university and its hospitals comprise 11 percent of nonagricultural employment in the metropolitan area. Research activities have resulted in the startup of about 160 companies during the past 10 years, adding approximately 7,000 employees. The university spent $400 million on research in the 1994-95 academic year, up from $160 million in 1985. This amount was the second-largest research expenditure among U.S. universities. More than $1.5 billion in capital improvements also was completed by the university during the past 10 years. General Motors and Ford Motor Company, with combined workforces of nearly 15,000, are the next largest employers in the Ann Arbor area. Ann Arbor's unemployment rate has historically been lower than any other metropolitan area in Michigan. As of November 1996, the unemployment rate was 2.6 percent compared with 2.9 percent a year earlier. Ann Arbor added 4,900 jobs over the past 12 months, boosting total nonagricultural employment in the metropolitan area to 261,500 jobs in November. State and local government, transportation equipment, trade, and business and health services provided most of the new jobs. The population in the metropolitan area, estimated to be around 500,000 in 1995, has increased more than 7 percent since the 1990 census. Ann Arbor's strong economy has boosted the sales housing market. From 1990 through 1992, an average of 900 single-family building permits were authorized annually in the metropolitan area. However, with the recovery of the automobile industry and other sectors of the area's economy in 1993, activity increased dramatically to an average of 3,373 units annually from 1993 to 1995. In 1996 single- family activity continued to surge, with 4,310 units. Especially active areas include Ann Arbor, Ypsilanti, and Pittsfield Township in Washtenaw County, and Brighton and Green Oaks Townships in Livingston County. The most popular price range for new homes is from $150,000 to $180,000. In Washtenaw County the median price of existing homes sold in the first 11 months of 1996 was $140,000, an 11-percent increase over the same period in 1995. Sales activity for the period was down slightly from last year. According to Ann Arbor's Board of Realtors (registered trademark), the average sale price of existing homes has been increasing by about 10 percent during the past 3 years. FHA mortgage insurance activity in the metropolitan area jumped 34 percent to 778 endorsed loans in the 12 months ending September 1996. The Ann Arbor area's rental market is currently balanced, but is getting tighter as a result of limited apartment construction. The rental housing vacancy rate is 5 to 6 percent in the metropolitan area, down from 8 percent in the late 1980s. Multifamily housing permits averaged only 365 units annually from 1991 to 1993, as the excess supply from the late 1980s was absorbed. In 1996 permits were issued for 614 multifamily units. The tight rental market within the city is dominated by the University of Michigan's more than 36,000 students. Several developers are planning apartment projects near the city. There are few affordable rental or homeownership opportunities for lower income households in Ann Arbor. To expand its stock of affordable housing, the city allocated HUD funds in 1996 for the development of 50 rental units. Rehabilitation of the Ann Arbor Inn with tax credits will add another 114 units of affordable housing for the elderly. SOUTHWEST For the 12-month period ending in November 1996, regionwide job growth averaged 2.8 percent. Job growth in Texas remained strong, with a 3.1-percent increase of 244,100 new jobs. Single-family construction and sales in 1996 were up throughout the Southwest, with an overall increase in single-family permits of 14.4 percent to 119,721 units. Texas, with 81,452 single-family units, had the largest increase, 17.4 percent. All major markets in Texas reported substantial increases in activity over strong 1995 levels. In the Austin-San Marcos metropolitan area, single-family permits were issued for 8,083 homes, a 43-percent increase over 1995. Activity was up by 15 percent in the Dallas-Fort Worth area to 25,508 units, by 22 percent in the Houston-Galveston area to 19,366 units, and by 11 percent in the San Antonio area to 6,484 units. Oklahoma City and Tulsa continue to show improvement, with single-family permits up 12 percent in each area. Multifamily building-permit activity in 1996 rose slightly less than 2 percent regionwide to 45,581 units. Only Texas and Louisiana reported increases. In Texas 35,089 units were permitted in 1996, 8 percent greater than 1995 and the highest volume in the past 7 years. Activity in the Houston area fell 16 percent in 1996. In the Dallas-Fort Worth area, the number of multifamily units was up only 1 percent to 13,512 units. Austin-San Marcos recorded a modest 5.6- percent gain to 6,325 units in 1996. Apartment construction is beginning to be cut back in the region's major markets in response to increasingly competitive market conditions, the large number of units still in the pipeline, and the large supply of affordable sales housing. Apartment occupancy is currently in the 90- to 94-percent range in most of the major markets. The Austin and Albuquerque rental markets have softened due to an oversupply of new luxury units and moderating employment growth. In Austin rental occupancy is likely to drop to 90 percent or less in 1997 as some 7,800 apartment units enter the market. Occupancy rates in Albuquerque should stabilize in the low 90s. In northwest Houston some new projects have been forced to lower rents to reach 90-percent occupancy. The San Antonio rental market continues to be in a slump, with overall apartment occupancy at 91 percent, unchanged from 12 months ago. Rent concessions have become widespread in both new and existing projects. In the New Orleans area, apartment occupancy has dropped about 1 percentage point to 92 percent during the past 12 months, and occupancy in the city of New Orleans has dropped below 90 percent. In Dallas, despite an estimated 11,000 new apartment units, apartment occupancy remained in the 94-percent range as people continued arriving in response to the new jobs. In El Paso the apartment occupancy rate has declined to around 90 percent as a result of reductions in military personnel at Fort Bliss and the slowdown in the local economy. SPOTLIGHT ON LAS CRUCES, NEW MEXICO The Las Cruces metropolitan area is located in south-central New Mexico bordering Texas and Mexico. The population of the metropolitan area has increased 3 percent annually since 1990 to more than 160,000 persons. During the same period, the city of Las Cruces has grown by 8,900 persons to become the largest city in southern New Mexico, with an estimated population of 71,000. For the 12 months ending in November 1996, employment in the Las Cruces area increased by 5.1 percent to 51,300 jobs over the previous 12-month period. This followed 1995, when employment increased by a healthy 4.3 percent. Nearly all job categories have contributed to the growth. Between 1990 and 1994, nonagricultural wage and salary job growth in the Las Cruces area averaged only 600 jobs per year, restrained by job losses at the White Sands Missile Range. Employment at the missile range peaked in 1990 at 9,033 jobs, but totalled only 6,981 by September 30, 1996. No additional layoffs are planned in 1997, but attrition should continue to reduce employment at this facility. Las Cruces is home to New Mexico State University, which had a full-time enrollment of 11,671 students in the Fall of 1996. The university has a major economic impact on the area. In addition the area has been attracting retirees due to its desert climate and scenery and relatively low cost of living. El Paso, Texas' airport and military installations are 40 miles to the south. Other major growth areas in the metropolitan area are Santa Teresa and Sunland Park. Santa Teresa is a 25-year-old planned development west of El Paso, which has a new border crossing with Mexico as well as golf courses and an airport industrial park. Sunland Park is a fast- growing community of more than 9,000 persons that is bounded by El Paso, Mexico, and Santa Teresa. There were 1,185 homes sold through the Las Cruces Multiple Listing Service in 1995 and another 1,173 in 1996. The average cost of existing homes in 1995 was $94,368. Because of its affordability, manufactured housing comprises a significant part of the housing stock in the area (25 percent in 1990). More than 1,000 new manufactured home permits have been approved each year since 1990. This compares with an average of 725 single-family homes and 150 multifamily housing units permitted annually during the same period. A large number of rental housing units in Las Cruces are in two- to four-unit buildings that are occupied by college students. Rental occupancy typically drops 10 to 15 percent in the summer months. There are a few existing luxury-type apartment complexes that cater to single professionals and retirees. The recent strong job growth should increase rental housing demand slightly during the next 2 years. GREAT PLAINS Nonagricultural wage and salary employment in the Great Plains increased by 127,500 jobs, or 2.1 percent, from November 1995 to November 1996 compared with 1.7 percent for the same 1994 to 1995 period. The region's labor market remains tight. As of November 1996, the unemployment rates in the region ranged from 2.4 percent in Nebraska to 4.0 percent in Missouri. Kansas City's unemployment rate was 3.5 percent, while in suburban Johnson County, it was 2.6 percent. Kansas reported the largest annual rate of employment growth in the region, 3.2 percent. A total of 38,800 jobs were added, nearly three-fourths of which were in construction, manufacturing, retail trade, and government. Wichita's booming aviation business provided all of the manufacturing employment growth in Kansas. Nebraska's 2.5-percent employment growth in the 12 months ending November 1996 added 20,400 new jobs. Job growth in manufacturing and services provided more than 60 percent of the increase. More than two-thirds of the State's job gains have been outside the Lincoln and Omaha metropolitan areas. Iowa's 1.8-percent employment growth continued to lag that of the national economy. A total of 24,700 jobs were created from November 1995 to November 1996, the major share in construction, retail trade, and services. Shortages of workers in the State are constraining job growth, particularly in the meatpacking industry. There are also shortages of skilled construction and metals workers. Missouri added the most jobs (43,600) from November 1995 to November 1996, but had the lowest growth rate (1.7 percent) of the four States. Manufacturing employment dropped by 7,200 jobs. Declines were widespread in both durable- and nondurable-goods manufacturing. The large decline of 2,200 jobs (8.6 percent) in aircraft and parts manufacturing reflects the winding down of several defense contracts in the St. Louis area. Kansas City is still facing shortages of telemarketing and customer service employees and skilled computer personnel. Homebuilding activity in the region continues at a strong pace, with single-family building permits for 1996 (43,350 homes) up 11 percent over 1995. All four States reported increases. Kansas (9,800 units) and Missouri (19,405 units) had the second best year in the past 7 years. Third-quarter sales of existing homes in the region remain strong, up 1.2 percent from the year-earlier period. Iowa and Nebraska registered gains of 6.6 and 4.6 percent, respectively. The Kansas City sales market has been strong, with single-family building permits (9,728 homes) exceeding 1995 totals by 17 percent. Sales of new homes in 1996 were up 14 percent over 1995, while sales of existing homes were up 8 percent during the year. The median price of existing home sales increased 8.7 percent from the second quarter of 1995 to the second quarter of 1996. Multifamily activity in 1996 reached the highest level (18,929 units) of the past 9 years. Strong gains were recorded in Kansas (51.7 percent), Missouri (27.1 percent), and Nebraska (47 percent). Nebraska, with 4,496 units, had its best year since 1972, and the Omaha metropolitan area saw its largest volume of multifamily construction since 1986. During the past year, the vacancy rate in larger garden apartments in this tight market has increased slightly from 2.7 to 3.5 percent. In the St. Louis area, an era is ending with the relocation of the last tenants from LaClede Town, a 1,240-unit HUD housing project. Once a model housing development, the complex has deteriorated over time, resulting in HUD's decision to raze all of the units. The city of St. Louis, which will obtain the cleared 53-acre site, plans to sell parcels of the land to Harris-Stowe State College, St. Louis University, Sigma-Aldrich Corporation, and A.G. Edwards and Sons. Proceeds from the sale will go to the Gateway Village project, a proposed residential community planned for an area of north St. Louis. Harris-Stowe State College is to obtain 17.5 acres, which will enable it to expand its campus by constructing 6 new buildings. St. Louis University will receive 14 acres for new student recreational facilities and a parking garage. Sigma-Aldrich Corporation will build a new headquarters on the 14 acres it will purchase, while A.G. Edwards and Sons investment firm plans to acquire 7 acres to expand its company's headquarters. SPOTLIGHT ON DES MOINES, IOWA Des Moines continues to expand as an insurance industry center. More than 60 home offices of insurance companies and 100 State, district, and regional offices for other insurance companies are located in the area. The Principal Financial Group has completed construction of an eight-story office building on its downtown corporate campus. The new 525,000-square-foot building, which will house an additional 2,500 employees, brings Principal's home-office space to more than 1.7 million square feet. In the Spring EMC Insurance Companies will complete their new 20- story office tower in downtown Des Moines. Known as "700 Walnut," the $50 million, 425,000-square-foot building is a major addition to its corporate headquarters. This building will house 1,250 employees. Equitable of Iowa recently announced that it will construct a six-story building in downtown Des Moines. Des Moines has started a major revitalization program known as the Gateway Project. The Gateway Commons Project, located six blocks west of downtown, involves a joint city/private-sector effort to revitalize the area known as Auto Row. Efforts will include preserving nine buildings that were of significance to the Des Moines automotive production and merchandising industry in the early years of the 20th century. Two new office buildings will also be part of this project. East of downtown, the Capitol Gateway East Project will revitalize the area bordering the Des Moines River and State capitol. Part of the plan is to improve the seven blocks of Locust Street leading from the river to the State capitol to make it an attractive boulevard and encourage pedestrian use. Since 1990 nonagricultural wage and salary employment in the Des Moines metropolitan area has increased a healthy 2.4 percent each year. The unemployment rate through November 1996 was a very low 3.3 percent. Multifamily housing building permits have averaged more than 1,050 units a year during the past 5 years. This level of production, however, has exceeded demand, resulting in an increase in rental vacancies. At the end of 1996, the apartment vacancy rate was estimated to be about 8 percent and is expected to continue increasing in 1997. Competition from the increased supply of condominium units has been a factor in the rise in rental vacancies. For the past 5 years, single-family building permits have averaged more than 2,250 units a year. According to the Des Moines Area Association of Realtors (registered trademark), 7,882 homes were sold during 1996, a 3-percent increase from the previous year. Sales prices also were up about 3 percent from 1995, averaging $104,700. Two large housing developments were recently announced in West Des Moines. When completed in approximately 5 years, one will have 600 houses and 900 apartments and townhomes, and the other will include 500 houses and 500 apartments and townhomes. ROCKY MOUNTAIN Fourth-quarter employment levels were up in most States. Annual growth rates continue in the 2- to 3-percent range in the Dakotas and Montana. Utah leads the region with a 5.1-percent rate, while Wyoming's annual growth rate remains less than 1 percent. Colorado's growth rate dropped below 2 percent in this quarter; some economists are now wondering if the anticipated slowdown in the State's economy will be more abrupt than expected. While residential construction in the region began to slow in the second half of 1996, non-residential construction continues to expand. Hiring at South Dakota's food-processing industries helped spur manufacturing growth in the second half of the year. Financial-service firms continue to expand. Utah's manufacturing sector is also strong, as evidenced by widespread gains in most durable-goods sectors. Montana's construction industry has lagged many of the other States, but this sector should get a boost from the start of construction on an 800-mile pipeline from Canada and a major plant in Butte. Colorado's advanced-technology sector will add a major employer when Sun Microsystems locates one of its three largest campuses in an industrial park between Denver and Boulder. The Colorado campus will eventually employ up to 3,500 workers. North Dakota's 2.7-percent unemployment rate in November tied Nebraska's figure for the lowest rate in the United States. South Dakota (2.9 percent) and Utah (3.0 percent) were not far behind. Business concerns about labor shortages continue to make news. A recent issue of a local business journal included an article entitled "Finding Employees in a Tight Labor Market." A local chamber of commerce is sponsoring a seminar with the same title. A recent survey done for the University of Colorado Economic Outlook Forum revealed that, for the second consecutive year, manufacturers indicated that the limited availability of trained labor was their primary concern for the coming year. In contrast to the manufacturing and services sectors, labor and material shortages in the residential construction industry that were reported a few years ago are no longer a major factor. While labor and material costs continue to increase, the rate of increase is manageable. Real estate brokers have noted that the quality of construction has improved because quality labor and building materials are more readily available. Regionwide building permit activity in 1996 was up a modest 6 percent for both single-family homes (54,310 units) and multifamily housing (22,708 units). The Denver, Colorado Springs, and Salt Lake City areas all recorded strong increases in single-family permits over 1995 levels. Rental vacancy rates remain at moderate levels in major rental markets in the Rocky Mountain region. Major softening is not likely in 1997, but most markets have become more competitive. There are a large number of apartment units under construction, and absorption of these will slow as the result of reduced employment growth and in-migration in 1997. Salt Lake City's and Colorado Springs' rental vacancy rates have increased to more than 4 percent for the first time since the early 1990s. Denver's rate hovered around 5 percent for most of 1996. Rent increases have fallen from double-digit levels recorded a few years ago to the 3-to 5-percent range. New apartment projects are renting up, but incentives are widespread. The large number of luxury units have made this segment of the market very competitive. In response, multifamily permit activity in the Denver area in 1996 declined 11 percent. The underlying strength of major metropolitan economies throughout the Rocky Mountain region will continue to support apartment construction, but markets must first absorb the large supply of units started in 1996. Rental markets in the smaller areas have also eased. Fargo, Sioux Falls, and Billings are absorbing new units coming on line, but vacancies have increased and rent increases are limited. Military cutbacks have adversely affected the Cheyenne and Great Falls rental markets. The strong rates of home sales and construction diminished during the second half of 1996. By the end of the year, the number of new and active listings had increased and sellers had begun to lower their asking prices. This trend should continue into 1997 as the market absorbs the increased supply of new and existing houses for sale. Home prices are expected to continue increasing, although the days of double-digit annual gains are over. Still, homebuilding activity in 1996 surpassed 1995's performance based on the strength of the first half of the year. SPOTLIGHT ON COLORADO SPRINGS, COLORADO Colorado Springs' economy continues to grow at robust levels despite military reductions at Fort Carson and some corporate layoffs. Wage and salary employment has grown by 6 to 8 percent per year during the past 3 years. The unemployment rate had declined to 3.8 percent by November 1996, one of the lowest rates in decades. The area's population has increased by 3 percent a year since 1990 to an estimated 480,000 persons. Construction, trade, and services-sector employment have accounted for about 75 percent of the new jobs during the past year. Also helping the local economy expand has been the growth in telecommunications, credit card and insurance processing, and semiconductor manufacturing. The $140 million expansion of the Colorado Springs Municipal Airport in 1994 and the entry of Western Pacific, a discount air carrier, added hundreds of employees in the transportation sector. Low fares and shorter commuting distances attracted many travellers who would otherwise have used the Denver International Airport. These activities more than offset the loss of 2,500 military personnel at Fort Carson, and downsizing at Digital Equipment, Apple Computer, and Quantum. The outlook during the next few years is for continued, if slower, economic growth. The expected slowdown in the semiconductor industry has delayed the opening of Rockwell Semiconductor Systems' $500 million plant. This slowdown will affect other area semiconductor manufacturers, including Atmel, Symbios Logic, and Vitesse Semiconductor. The rapid growth in trade employment recorded during the past few years also will subside because of an expected slowdown in retail expansions. Construction, however, will remain strong, including semiconductor- related and hotel expansions. While the bargains for commercial buildings and residential housing have passed, the area still competes well with many other areas of the country. Its amenities will continue to appeal to workers, retirees, and businesses relocating to the area. The sales market had eased by the end of 1996, but the year as a whole was a good one. Total sales increased slightly, and the average sales price was up 8 percent to nearly $140,000. Most new homes are priced between $150,000 and $200,000. Demand is strong for homes priced less than $120,000, but the supply is limited. In 1996 permits were issued for more than 4,000 single-family units, an 18-percent increase over strong 1995 activity. The rental housing market has moved from tight to balanced, but the slowing of apartment construction in the second half of 1996 should keep it from softening. The vacancy rate has increased slightly to about 4 percent, and the average annual rent increase has slowed to about 3 percent. Since the beginning of 1995, 12 large multifamily projects totalling nearly 2,500 units have broken ground. The phased completion of these projects has allowed them to reach sustaining occupancy. The largest U.S. Department of Defense housing project under the Military Family Housing Privatization Initiative is underway at Fort Carson. The Army has issued an invitation to build and manage 840 new units and renovate the post's existing family housing stock of 1,824 units. Construction could begin by the end of 1997 and will take 4 to 5 years to complete. Completion of this project will free up moderately priced housing units in strong demand by the civilian population. PACIFIC The Pacific economy has improved significantly in the past year, adding 459,500 new jobs in the 12 months ending November 1996. With its best economy since the late 1980s, California's 326,400-job increase (2.6 percent) was fueled by services, electronics manufacturing, and exports. The State is expected to have a 2.5- to 3-percent employment growth rate in 1997. California's unemployment rate fell sharply in 1996 to 6.9 percent as of November. San Jose's high-technology products recently made it the State's leading export zone and fastest-growing area. Six Southern California counties produced half of the State's new jobs. Arizona's economy finished the year robustly, with 85,800 new jobs added during the 12 months ending in November, a record 4.7-percent increase. Construction has been a major factor in the fast-growing economy, with current employment more than 10,000 jobs above the 1986 peak. However, the completion of Intel's Chandler semiconductor plant and a slowdown of both residential and commercial construction should slow employment growth in 1997. The continued growth of Nevada's hotel/casino business in 1996 supported a 7.4-percent increase in employment of about 58,000 new jobs. Construction and expansion of hotels and casinos in 1997 are expected to fuel employment gains that may be even larger. Hawaii's economic performance was mixed in 1996. After several years of job losses, modest growth of tourism and the tapering of government downsizing should lead to stabilization or slight increases in employment in 1997. The U.S. Bureau of the Census recently predicted that Nevada and Arizona will be the first- and third-ranked States, respectively, for percentage population growth from 1995 to 2000, 22.2 and 13.1 percent, respectively. California is expected to add 932,000 persons, the third-largest absolute gain. Single-family production in 1996, as measured by building permits, increased 7 percent in California to 73,610 homes. While an improvement over 1995, levels remain well below those of the late 1980s. Permit activity was up in 17 of 25 metropolitan areas, with activity in San Diego up more than 20 percent. In San Jose single- family activity in 1996 (4,035 homes) was almost double that of 1995. In Arizona single-family permits were up 5 percent to 41,666 units, the second best year of the past 7 years. Nevada also experienced its best year of the past 7 years, with permits up 6 percent to 23,875 units. New home construction in Hawaii retreated during the year, reflecting the sluggish economy. Existing home sales were very strong in 1996, increasing 20 percent in California through November for the best performance since 1989. The Phoenix and Las Vegas areas each gained 14 percent. Multifamily building permit activity for the Pacific region was up 7.9 percent in 1996 compared with 1995 levels. Nevada led the region with a 30-percent increase (13,412 units), reflecting the strong Las Vegas rental market. In Arizona multifamily activity was down a slight 3 percent but remains very strong at 12,311 units. Apartment production was up nearly 14 percent in California to 18,299 units, though still far below the levels of the 1980s. With the improved economy and relatively low levels of production, tighter conditions are evident in a number of rental markets. The San Jose and San Francisco rental markets are extremely tight, with vacancy rates of less than 3 percent in professionally managed properties. The number of multifamily units permitted in San Jose in 1996 (3,538) was almost triple 1995 levels, and activity in the entire Bay Area was up 71 percent over 1995 to 7,158 units. The Sacramento area rental market is balanced, with the vacancy rate in the 4- to 5-percent range. Southern California rental markets improved gradually in 1996. Southern Orange County is reported to be tight, with an overall vacancy rate estimated to be in the 3- to 4-percent range, while northern Orange County submarkets are showing 5- to 6-percent vacancy rates. Multifamily permit activity in Orange County was up 41 percent in 1996 to 3,174 units. Property managers report double-digit vacancy rates in most Riverside-San Bernardino submarkets. There was minor improvement in the predominantly soft Los Angeles market, but the apartment vacancy rate remains around 9 percent. San Diego County is balanced overall, with a 5- to 6-percent rental vacancy rate, and northern- tier communities are reporting tighter conditions. SPOTLIGHT ON PHOENIX, ARIZONA Since 1990 the Phoenix metropolitan area has been the most rapidly growing of the 39 major job markets in the Nation. The area added 63,000 jobs, a 5.2-percent increase, in the 12 months ending November 1996, but is expected to grow more moderately in 1997. Reflecting the tight labor market, the unemployment rate as of November was a low 3.4 percent. Services and trade have each contributed about one-third of 1996's employment growth. One of the largest employers in the area is Arizona State University (ASU), with 47,000 students and 7,700 faculty and staff. High-technology manufacturing has been a major source of the growth. Motorola is the largest private-sector employer (19,350 jobs), followed by AlliedSignal, Intel, Honeywell, and McDonnell-Douglas. Intel is completing a semiconductor chip plant in Chandler, while Sumitomo Sitix is building one in north Phoenix. In-migrants attracted by employment opportunities or retirement amenities have accounted for more than two-thirds of the population growth since 1990. The ASU Center for Business Research estimated the population of Maricopa County at 2,634,000 as of the third quarter of 1996, reflecting a 3.1-percent annual increase since 1990. The population growth for the remainder of the decade is forecast to slow to around 2.6 percent annually. The area's substantial growth has supported an extremely strong housing market. Single-family permit activity in 1996 set a record with 29,505 units. With new home prices now more than $140,000, up more than $10,000 during the year, affordability is a growing concern. The higher prices reflect increased costs of finished lots, labor shortages, and development fees. Local observers expect home production to drop 10 to 15 percent in 1997, still a very healthy level by past standards. Existing sales also hit a record in 1996, with sales up nearly 14 percent during the year. The median sales price for a three-bedroom home started the year at about $94,000 and increased to $100,000 in December. Phoenix permitted 9,849 multifamily units in 1996, a 12.1-percent increase over 1995. Despite the high levels of production, the overall rental market remains balanced. The Arizona Real Estate Center estimated an apartment vacancy rate of 4.5 percent in the third quarter, up from 4.2 percent a year earlier. Concessions have been necessary, however, in submarkets where too many similar projects came on line simultaneously. NORTHWEST Northwest employment as of the fourth quarter of 1996 was up 3.2 percent, or 143,800 jobs, over the fourth quarter of 1995. This figure compares with a 1.6-percent growth rate from 1994 to 1995. All States reported job gains, the smallest being in Alaska. Employment was up 4.9 percent in Idaho, 4.2 percent in Oregon, 2.4 percent in Washington, and 1 percent in Alaska. The region's unemployment rate as of the fourth quarter was 5.8 percent compared with 5.9 percent during the same period in 1995. The metropolitan areas with the lowest unemployment rates were Boise (3.4 percent) and Portland (4.2 percent). The outlook for the Northwest economy is optimistic. The boom in the aerospace industry will coincide with the continued expansion in the high-technology, banking, construction, utilities, and services sectors, especially in Washington and Oregon. Mining industry prospects also appear favorable in Alaska and Idaho. Net migration will continue strong through the end of the decade, particularly into metropolitan areas where unemployment rates are low and the pressure on wages is significant. Washington's population is expected to increase by 400,000 during the next 4 years. According to the State's projection, the population in the 1990s will grow at the fastest rate since the World War II boom. Winter storms came early to the region with devastating effect. Engineers and contractors are busy in the aftermath of the storms. In Washington insured losses are estimated to be in the $125 million to $150 million range. The State is also requesting $42 million in Federal disaster assistance. The growing strength of the economy kept residential construction rising in 1996. Single-family building permit activity jumped in every State. Activity was up 10.6 percent in Washington to 30,013 homes and 9.2 percent in Oregon to 16,913 homes. Sales of existing homes in most metropolitan areas in Oregon exceeded levels attained in 1995. Price appreciation continued to motivate most trade-up activity. The Salem and Portland-Vancouver areas remained very strong in 1996, with single-family permits up 21 and 12 percent, respectively, over strong 1995 volumes. Nearly 50 percent of Idaho's single-family permit activity occurred in Boise, where sales of newly constructed homes have been strong, especially in the $100,000 to $150,000 range. The Idaho Association of Realtors (registered trademark) reported that total 1996 sales equalled 12,443, just 1.3 percent below the strong level of 1995. House price appreciation advanced 1 percent in 1996 compared with 5 percent in 1995. The number of homes sold in the Puget Sound area (Seattle, Tacoma, and Bremerton metropolitan areas) was up by 10 percent in 1996. The median price of a home sold in the Seattle metropolitan area as of the third quarter of 1996 was $168,800. Single-family permits in the Puget Sound area for 1996 were up a modest 3.5 percent to 16,026 units. Alaska and Washington reported impressive increases in multifamily housing production, while activity in Idaho decreased. In Washington multifamily units were up 9.4 percent to 12,370 units due to the 29-percent jump in activity in the Puget Sound area (8,296 units). Idaho production declined as builders responded to the soft rental market conditions in the Boise area. Apartment permits issued in Boise in 1996 totalled 297 units, less than one- third of the 1995 level, and far below the 2,300 units permitted in 1994. The rental vacancy rate in Oregon's metropolitan areas increased from 3.5 percent in the fourth quarter of 1995 to 4.8 percent in the fourth quarter of 1996. Multifamily housing activity in the Portland metropolitan area in 1996 remained fairly strong with 7,170 units permitted. Activity in Salem increased more than 27 percent in 1996 to 1,419 units in response to continued tight market conditions. The apartment vacancy rate in the Seattle area is 3.5 percent, a 6-year low. SPOTLIGHT ON SPOKANE, WASHINGTON From 1991 through 1994, employment in the Spokane area grew at an average annual rate of 2.3 percent, hitting a peak of 3.5 percent in 1994. Layoffs by existing employers and a reduction in the number of new enterprises caused nonagricultural wage and salary employment growth to decline by 1.4 percent in 1995. The economy showed modest improvement in 1996, with employment up 1.9 percent to 182,440 jobs. The unemployment rate as of the fourth quarter of 1996 was 4.8 percent, down from 5.4 percent during the fourth quarter of 1995. The Spokane area's population growth also has slowed during the past 2 years. The population increased by a modest 1.3 percent in 1996 to just more than 406,000 persons. This figure compares with an annual average increase of around 3 percent from 1991 to 1994. The unincorporated area east of the city of Spokane known as the Valley has been the center of much of the area's recent commercial and residential development. The sales market has cooled. Home sales for the first 11 months of 1996 were down by 5 percent to 4,294 homes. The average sales price rose by 2.5 percent to $113,250. New home construction has averaged about 1,475 units annually during the past 2 years, which is 25 percent below 1991 through 1994 activity. The Spokane rental market has begun to show signs of softness. Concessions are becoming more evident. For the third consecutive quarter, the area has an estimated rental vacancy rate of 7 percent, up from 5.5 percent in 1995. Multifamily housing construction, however, has showed no signs of slowing down. There were more multifamily units permitted during 1996 (1,816 units) than in any year since 1979. The outlook is that the supply of new rental units will continue to outpace the demand for the near future. ------------------------------- SUBSCRIPTION FORM U.S. HOUSING MARKET CONDITIONS YES, I want to subscribe to U.S. Housing Market Conditions and get current and comprehensive information on national and regional housing markets. This quarterly publication is available to me at a cost of just $30/year* payable to: HUD USER P.O. Box 6091 Rockville, MD 20849 or call 1-800-245-2691, fax 1-301-251-5767 *Call for multiple subscription discounts Please keep me informed electronically of each issue, my e-mail address is:__________________________________________________ ____ Check enclosed payable to HUD USER. ____ Government Purchase Order only (enclosed) No.: ______________ Charge my: ____ MasterCard ____ VISA Acct. # _____________________________________________________ Exp. 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