The economy in the Midwest region continued to record employment declines through the second quarter of 2003. Total nonfarm employment averaged 24.1 million for the 12 months ending in June, down 0.8 percent compared with the previous 12 months. The rate of decline represents a significant improvement compared with the 2.1-percent decline during the previous 12-month period. Private surveys of business conditions in the second quarter show flat local economies in the Chicago, Cleveland, Detroit, Grand Rapids, and Milwaukee metropolitan areas compared with conditions as of the second quarter of 2002. Unemployment in the Midwest reached 6 percent in June 2003, up from 5.6 percent in June 2002.

There are indications of recovery and growth in the region. Cincinnati-area manufacturers expect that production and new orders will increase during the next 6 months. In Indianapolis Roche Diagnostics Corporation’s $135 million expansion is expected to add 600 new jobs in healthcare over the next 3 years. The State of Indiana has proposed a $1.25 billion economic development program that is planned to boost employment throughout the state during the next 5 years.

Existing home sales in the region remained strong through the second quarter of 2003. The Illinois Association of REALTORS^® reports that existing home sales in the state are on track to surpass last year’s record-breaking performance. Sales volume in the first 6 months of 2003 was 2 percent above the same period in 2002. The median sales price in Illinois was up 7 percent to $167,300. The Chicago Association of REALTORS^® expects 2003 to be another robust year for existing sales. In the first 6 months of 2003 sales have totaled 60,900 homes in the metropolitan area, up 2 percent compared with the first half of 2002. Continued strong demand for homes in the Minneapolis-St. Paul area resulted in home prices increasing by 8 percent in 2002 to the highest in the region according to OFHEO. The Minneapolis Area Association of REALTORS^® reports that demand for existing homes continued to be strong in the first 6 months of 2003, pushing the median sales price above $200,000. In Ohio record sales of existing homes in June bolstered activity in the first 6 months of 2003 to 59,000 homes, up 2 percent compared with sales in the first half of 2002. Sales activity was up in the state’s three major markets, Columbus, Cleveland, and Cincinnati, and average sales prices increased by as much as 5 percent. The Greater Milwaukee Association of REALTORS^® reports that existing home sales for the first 6 months of 2003 were up 2 percent over the first 6 months of 2002.

Single-family homebuilding continues to be very strong in most of the Midwest’s major markets. Building permits were issued for 103,300 single-family homes in the first 6 months, up 1 percent compared with the activity in the first 6 months of 2002. In Minnesota the Builders Association of the Twin Cities predicts that sales of new homes and residential construction in 2003 will be record-breaking. With strong demand from both move-up and first-time buyers, area builders took out permits for 8,880 new homes in the first half of the year, up 8 percent compared with the first 6 months of 2002. The Southeast Michigan Builders Industry Association reports that residential construction activity in the Detroit-Ann Arbor area was robust during the first 6 months of 2003 because of low mortgage interest rates. Permits were issued for approximately 11,350 new homes through June 2003 compared with 11,200 units in the first 6 months of 2002.

Wisconsin builders were optimistic in the second quarter because of the continued strong demand for new homes statewide. The Wisconsin Builders Association expects that new home construction in 2003 will equal activity in 2002, one of the best years for new home construction since the late 1970s. Building permits totaled 13,000 single-family units through June, up 6 percent from last year. In suburban Milwaukee home construction will receive a boost from the planned $1 billion Pabst Farms project, which started construction in the first quarter of 2003. Wisconsin’s largest mixed-use development is expected to have 1,000 new homes, high-end retail, and office and light manufacturing businesses.

As a result of continued high demand for new homes Chicago builders expect that 2003 sales in the metropolitan area will total approximately 24,000, down from record sales of 26,000 in 2002 but still very healthy. New home development is particularly strong in Southwest Cook County near New Lenox and in fast-growing Kendall County. Despite softer market conditions for condominiums in downtown Chicago developer interest in the area remains high. In the city of Chicago it is expected that 40,000 new homes and apartments will be constructed downtown during the next 15 years to accommodate significant population growth. Total downtown population is expected to reach 150,000 by 2020. One of the largest housing developments in the region started construction in downtown in June; when completed, the $3 billion Lakeshore East project will be a planned residential community with 5,000 housing units consisting of condominiums, townhomes, and luxury apartments.

Multifamily activity in the Midwest continued to slow in the second quarter of 2003. Building permit activity was down 4 percent in the first 6 months of 2003 to 27,600 units. Only Indiana and Wisconsin recorded increased multifamily building permit activity of 5 and 14 percent, respectively. Madison’s healthy economy helped maintain a balanced but tighter apartment market in the first half of 2003, with an apartment vacancy rate averaging 5 percent. Encouraged by the healthy market conditions and strong demand multifamily building permit activity in the first 6 months of 2003 was up 57 percent compared with this time last year. Conditions in the Milwaukee apartment market are expected to remain somewhat soft for the rest of this year because of the weaker economy and a lack of significant employment growth. Marcus & Millichap reports that apartment vacancies in the metropolitan area will hold steady in the 8- to 9-percent range and rent increases in 2003 will remain low in the 1- to 2-percent range. Although conditions are soft developer interest in downtown Milwaukee remains strong. One of the biggest residential projects planned for downtown is the $250 million Park East Freeway redevelopment project, expected to start construction of new apartments, townhomes, and office space in 2003.

Conditions in most rental markets in Minnesota are more balanced than a year ago. In Minneapolis-St. Paul the apartment vacancy rate has increased from 5.1 percent in June 2002 to 6.7 percent in June 2003.

In Illinois softer conditions are being reported throughout smaller metropolitan rental markets in the first half of 2003. Conditions in the Rockford market are the softest of the past 10 years as a result of the flat economy and overbuilding. Apartment vacancy rates of 10 percent or more are common. Local sources in Peoria report that as of the second quarter of 2003 market conditions were the weakest since the 1980s, caused by the stagnant economy and renters moving to homeownership. The apartment vacancy rate in the metropolitan area was 15 percent as of May 2003.

The apartment market in the Chicago area is also expected to remain soft this year according to a Marcus & Millichap report. Vacancy rates will likely increase throughout 2003, rents will remain flat, and concessions will remain widespread. In response to the soft rental market apartment developers have reduced production. Suburban apartments under construction totaled approximately 1,400 units as of May 2003, well below the 2,600 units under construction in May 2002.

CB Richard Ellis reports that weaker conditions continued in the Cincinnati apartment market in the first half of 2003. The Columbus apartment market is also very competitive with occupancy rates at 91 percent or below because of competition with sales housing and new rentals, according to Buckingham Properties. Monthly rents for two- and three-bedroom townhomes are approximately equal to the mortgage payment on a home.