Employment growth in the Midwest region moderated during the third quarter of 1999. The regional economy added 247,000 nonagricultural jobs in the 12 months ending in August, a 1-percent increase. The unemployment rate for the region as of August 1999 was 3.4 percent, down slightly from last year at the same time.

Home construction activity in the region remained strong in the third quarter. Building permits were issued for 160,655 single-family homes through September, up 9 percent over 1998's volume for the same period. Activity for the first three quarters of 1999 was up in every State and major metropolitan area of the region. In the Indianapolis area, builders expect a record 14,000 new homes to start construction in 1999. Homes in Marion and Hamilton Counties priced from $125,000 to $225,000 are likely to account for half of the metropolitan area's new home sales.

In the Chicago metropolitan area, single-family building permit activity for the first 9 months of the year was up 9 percent due to strong gains in the Chicago metropolitan area, where permits were issued for 21,528 single-family homes. Builder expectations remain high due to continued brisk sales during the summer months. The Chicago Association of REALTORS^® reported that existing home sales in the city continued to climb through September. Sales activity was 9 percent greater than 1998's volume for the first 9 months. The sales market in Illinois should finish the year as one of the best of the decade.

Michigan builders and real estate agents reported strong sales activity in the first 8 months of the year. In western Michigan, the Grand Rapids Association of REALTORS^® reported a record 7,416 homes sold through August, 6 percent above the same period in 1998, at an average price of $124,700. The area's robust sales market during the past 3 years has increased the homeownership rate to an estimated 81 percent as of the second quarter of 1999. Strong buyer demand in the Detroit-Ann Arbor area is sustaining a high level of activity, equal to last year, according to the Building Industry Association of Southeast Michigan. Increased demand for housing in the city of Detroit has spurred new home construction along the riverfront east of downtown, the New Center area, and Woodward Avenue.

The Ohio Association of REALTORS^® reported that sales of existing homes in the State held steady at 68,500 homes in the first 8 months of 1999, while the average sales price was up 4 percent over the same period in 1998, to $134,700. Existing home sales in the Cleveland (15,300), Cincinnati (14,300), and Columbus (12,700) areas during the same period were nearly identical to the record sales volume for the same period in 1998.

Multifamily housing construction activity for the first 9 months of 1999 in the Midwest region also continues to show increased strength. Permits were issued for 44,491 units, up 8 percent from the comparable period in 1998. Big increases were reported in Illinois, Minnesota, and Ohio. The Chicago area apartment market continues to see strong demand for new rentals. Multifamily building permit activity in the metropolitan area was up 37 percent to 7,577 units in the first 9 months of the year. Overall, rents are increasing 3 to 6 percent annually in suburban areas and 4 to 7 percent in the city of Chicago. New luxury apartments in both downtown Chicago and the suburbs are being leased-up a rapid pace. In the downtown market, a 809-unit development pre-leased 90 units in its first 3 weeks, while in west suburban Kane County, a development leased 50 of its 400 apartments in the first 2 months at rents of $1,700 for two-bedroom units.

Continued economic growth in Ohio has increased demand for rental housing in 1999. Permits were issued for 3,287 multifamily units in the Cincinnati-Hamilton area in the first 9 months. Apartment vacancy rates in the metropolitan area in the third quarter were in the 4- to 5-percent range, unchanged from 1998, according to a CB Richard Ellis survey of 47,200 units. There has been a 50-percent increase in multifamily permit activity in the Columbus metropolitan area through September. Cleveland-area builders also report apartment construction in 1999 to be up significantly compared with last year at this time. In the Dayton area, Corson and Associates' third-quarter 1999 survey of 27,000 apartment units reported an occupancy rate of 94 percent, up from 92 percent in third-quarter 1998.

Milwaukee's apartment occupancy rate is in the 94-to 96-percent range, and rents are increasing 3 to 5 percent annually. One developer reported that new apartment units entering the suburban market are either fully pre-leased or absorbed within 60 days. The city of Milwaukee is seeing new apartment construction in neighborhoods where there has been no activity for the past 10 years. Milwaukee's Department of Development reported that 1,200 units of rental housing have been completed in the city since 1997, about 75 percent of the total multifamily activity. Another 700 rentals and condominium units are expected to be completed this year. Interest in the downtown area has increased. One planned development, Library Hill Apartments, will have 150 market-rate units renting for $655 to $1,100 a month, double the number planned initially. Similar activity is occurring in the BeerLine area north of downtown, where developers have completed 400 to 500 units in the past 2 years, converting vacant industrial space to loft-style apartments and condominiums.

Multifamily activity in Indianapolis through September was down 19 percent. The decline reflects cutbacks in builder activity in response to the large number of new units that are entering the suburban market this year and the increasingly competitive conditions in some suburban areas. The revitalizing downtown is seeing good absorption of new rental housing due to the area's growing popularity with single professionals and the expansion of Eli Lilly's headquarters, which will add 7,500 high-paying jobs over the next 10 years.

Spotlight on Minneapolis-St. Paul, Minnesota

Minneapolis-St. Paul is one of the fastest growing areas in the Midwest region. Nonagricultural employment increased by 3.2 percent, or 53,300 jobs, in the 12 months ending in September 1999, while the unemployment rate has remained below 3 percent for the past 2 years. The population of the 13-county metropolitan area reached 2.8 million in 1998, a 12-percent increase since 1990.

Construction is operating flat out, with high activity levels in nonresidential building, public works, and sales housing. Office, retail, and industrial construction have all been strong. Downtown Minneapolis and downtown St. Paul are experiencing increased demand for new office buildings. In the suburb of Maple Grove, a 390-acre former gravel pit is being developed into what is planned as the city's downtown. The development will have retail and commercial uses as well as approximately 2,000 housing units.

Minneapolis-St. Paul has a very strong housing sales market. Sales of 37,880 existing homes in the Twin Cities in the first 9 months of 1999 were about equal to the same period in 1998. But the median sales price was up 9 percent over last year to $133,000. From 1990 through 1998, building permits were issued for more than 130,400 single-family homes in the metropolitan area. The Builders Association of the Twin Cities reported that permits were issued for 12,840 new homes through September 1999, up 15 percent from the first 9 months of 1998. The largest numbers were recorded in Hennepin, Anoka, Washington, and Dakota Counties, with activity growing in Carver and Scott Counties. Single-family detached housing is the norm, although the number of townhouses for sale has been increasing.

The overall rental market in the Twin Cities remains tight. Although multifamily production has increased in the second half of the decade averaging 3,500 units or more annually, compared with 2,500 in the first half, supply has not kept up with demand. The rental vacancy rate in the metropolitan area dropped from 6.5 percent in 1990 to 3.9 percent in 1998, according to the U.S. Census Bureau. Local apartment surveys report vacancy rates of 1.5 percent as of September 1999 and rent increases of 7 percent or more during the past year. Responding to increasing concerns about the availability of affordable housing, Minnesota's legislature appropriated $28 million for new housing development. The Challenge Fund provides $20 million for affordable projects that also support economic development and requires cash contributions from area employers. Another $8 million is available for projects that use innovative building techniques or materials.