The economy of the Southwest region continued to grow in 2001, but at a much slower rate than previously. Employment grew by 1.7 percent in the 12 months ending in December, compared with 2.6 percent for 2000. Texas continued to lead the Southwest with an increase of 198,000 new jobs, an annual growth rate of 2.1 percent. New Mexico and Oklahoma also recorded moderate gains of 1.5 percent and 1 percent, respectively.

Residential building activity remained quite strong in 2001. Through December, single-family permit activity totaled 150,663 homes, a 3-percent gain. All States again recorded increases with Texas accounting for nearly 75 percent of all activity. Multifamily permit activity for the region totaled more than 44,000 units, up 13 percent over 2000. Activity in Texas totaled 35,114 units, an 8-percent increase over 2000 volume. Multifamily activity in the Dallas-Fort Worth area for the year rose 40 percent compared with 2000. In the Houston metropolitan area, activity for the year declined 10 percent as market conditions became more competitive.

According to the NAR, existing sales for the year in the Southwest were up 4 percent to 811,300 homes. Texas accounted for more than 529,000 of these sales. Activity in New Mexico increased more than 20 percent, and sales in Oklahoma were up 11 percent. Significant increases in median sales prices were reported as of the third quarter of 2001. Prices in Little Rock increased 8 percent to $95,100, and in Oklahoma City, 11 percent to $95,000. The Austin-San Marcos metropolitan area recorded the highest median sales price in the Southwest, $152,000, up 6 percent from 2000.

In the Dallas-Fort Worth area, sales of 36,000 new single-family homes set a new record. The market for existing sales remained robust as well. The rental market softened slightly during the latter half of 2001 due to the slower economy and an increase in supply. Average apartment occupancy dropped from 93 percent as of December 2000 to 91 percent in December 2001, as 6,800 new units entered the market. With permits issued for more than 12,000 multifamily units in 2001 compared to 8,600 in 2000, the Dallas-Fort Worth apartment market is expected to continue to soften in 2002.

Faced with more competitive conditions, newer developments did not increase rents as much as older complexes. Overall, the average rent for a two-bedroom apartment at year's end was approximately $800, a 3.4-percent increase for the year; however, the average rent for a two-bedroom unit built after 1990 was $1,075, a 1.4-percent increase.

A dramatic slowdown in the local economy combined with a huge increase in the supply of new apartments led to significantly soft market conditions in the Austin area. Apartment occupancy in Austin stood at 88 percent at year's end, the lowest rate in 10 years and down from 96.4-percent occupancy in 2000. Rents dropped to 1999 levels as almost 9,500 new apartments entered the market. Conditions are worst in the previously fast-growing northern suburbs. At year's end, apartment occupancy was less than 80 percent. Much of the metropolitan area's computer industry is centered near this submarket, where an estimated 3,500 rental units are currently under construction. With another 8,700 apartments scheduled for completion in 2002, occupancy in the Austin rental market is expected to continue to be soft throughout the year. The downturn in Austin has also affected the sales market. For the year, sales of existing homes declined 5 percent, and new home sales were off 32 percent. New sales are expected to continue to decline in 2002.

As of the end of 2001, most of the Houston rental market was balanced. Houston's apartment occupancy rose slightly to 93 percent, and average rents continued to increase, as Tropical Storm Allison forced hundreds of homeowners and renters with flood-damaged dwellings into apartments. In 2001, permits were issued for approximately 7,000 multifamily units, compared with 7,700 in 2000. Overall occupancy in the Houston apartment market is anticipated to drop to 92 percent in 2002 as displaced homeowners move back to their homes and renter household growth remains lower. The downtown Houston apartment market is expected to be particularly hard hit. The slowdown in the local economy has not affected the sales market. In 2001, permits were issued for more than 30,200 single-family homes, a 9-percent increase over 2000.

In the Albuquerque area, the rental market is balanced. Apartment occupancy at year's end stood at 93 percent, and average rent for a two-bedroom unit was $685. There is some temporary softness in rental development in the lower rent ranges because of the completion of more than 1,550 tax-credit units during the past 3 years. Overall, the market is expected to remain balanced through the next 12 months as the 800 rental units currently under construction are expected to be adequate to meet the estimated growth in demand.

Spotlight on Fayetteville-Springdale-Rogers, Arkansas

The Fayetteville-Springdale-Rogers metropolitan area's economy has not been affected by the recession—during the past 6 years, nonagricultural wage and salary employment has increased 21 percent. The area is home to both Wal-Mart, the world's largest retailer, and Tyson Foods, the world's largest marketer of chicken, beef, and pork. Wal-Mart's continued expansion has boosted employment at their headquarters office and distribution center as well as at the local offices of many of their suppliers. In September, Tyson Foods acquired meat processor IBP, Inc. The effect of the acquisition on future local employment and the housing market is uncertain.

Fayetteville is home to the University of Arkansas, which has a student enrollment of 15,500 and faculty and staff of 3,500. The university has experienced an annual enrollment growth rate of approximately 1.5 percent in the past 4 years. Arkansas recently embarked on an expansion/improvement plan with a goal of achieving an enrollment of 22,500 by 2010. During the scholastic year ending June 30, 2001, the university received almost $60 million in research funding, a 21-percent increase over the previous year. Although the University of Arkansas has a stabilizing effect on the local economy, Fayetteville is not as dependent on the school as are other, similarly sized college towns that do not have as diverse an economy.

In the 12 months ending December 2001, nonagricultural employment in the metropolitan area increased by 3.1 percent, or 4,800 jobs, compared to 2000. The unemployment rate for 2001 remained very low at below 2 percent. This resulted in labor shortages, particularly in entry-level positions requiring minimal skills.

The current population of the Fayetteville metropolitan area is 316,000. The population is equally divided between Benton and Washington counties. Paralleling the area's economic expansion, it has experienced sustained rapid population growth over the past 12 years. From 1990 to 2000, the population of the area grew 47.5 percent, or an annual average of 10,000 persons. Faced with a shortage of local labor, the rapidly growing poultry processing industry recruited laborers from throughout the Nation and abroad. More than 70 percent of the population growth in the area in the previous decade was the result of in-migration. A significant proportion of these new residents are of Hispanic origin, from areas such as California and South Texas. Between 1990 and 2000, the Hispanic population increased from 2,885 to 26,400. Hispanics currently make up 8.4 percent of the total population.

Residential construction activity rose steadily through the early 1990s to a peak of 4,200 in 1994, then declined to one-half that amount in 1998 before rebounding to 3,619 units in 2001. The drop in the mid-1990s mainly reflected a reduction in multifamily units from 2,400 in 1994 to 210 in 1998. Single-family housing production, which has averaged 1,800 units per year since the mid-1990s, totaled 2,197 homes in 2001. This surpassed the previous record, set in 1996, of 2,050 homes.

Development impact fees are becoming more common as local governments look for ways to offset increasing infrastructure costs in this rapidly growing area. Bentonville recently approved establishing impact fees for wastewater service, water, and fire protection. Single-family homes will be assessed a fee of $3,598. A multifamily unit on a separate water meter will be assessed a fee of $3,068 per unit. The fees will become effective July 1, 2002.

The overall sales market is balanced. Tighter market conditions are reported in homes priced below $100,000. Sales of both new and existing homes remained strong throughout 2001. Local sources report that most new homes in the Fayetteville and Bentonville areas are priced between $130,000 and $180,000, and in the Springdale-Rogers submarket, between $110,000 and $150,000. For 2001, the median sales price of existing homes in the entire metropolitan area was estimated to be $105,000.

The rental market in the Fayetteville-Springdale- Rogers area remains tight. The current vacancy rate is estimated at 2 percent throughout all rental ranges. Permits were issued for 1,422 multifamily units in 2001. About 80 percent of this activity is market rate, with typical rents of $700 for one-bedroom units, $900 for two-bedroom units, and $1,100 for three-bedroom units. These additional units, rented at more than twice the annual average for the preceding 5 years, should help alleviate the tight conditions.