The Midwest economy continued to slow in the third quarter of 2002. Employment in the region averaged 24.9 million jobs in the 12 months ending September 2002, a decline of 115,000 jobs, or 0.4 percent, from the previous 12-month period. The primary reason for the slower growth was losses in the manufacturing and trade sectors, which offset gains in the service and government sectors. All States recorded job losses except Minnesota and Wisconsin, where employment increased by 1 percent and 1.3 percent, respectively. The unemployment rate in the region averaged 5.5 percent for the 12 months ending September 2002, up from 4.4 percent for the same period in 2001.

Despite this weaker economy single-family building permit activity in the region has been strong. Builders took out permits for 157,700 new homes in the first 9 months of 2002, 1 percent above the already high levels for the same period in 2001. Activity increased moderately or remained stable in every State except Indiana, which recorded a moderate drop in activity. In Minnesota the Builders Association of the Twin Cities reported that construction activity in the Minneapolis-St. Paul area through September 2002 increased 11 percent to 12,600 homes. The increase is due to strong demand by move-up buyers and first-time buyers, as a result of low mortgage interest rates. Reflecting builder optimism, a record 860 model homes were entered in the Parade of Homes Fall Showcase held in the metropolitan area.

The sales market for both new and existing homes in the region also remained robust in the third quarter. Chicago area builders reported that new home sales in the first 9 months of 2002 totaled 20,000 homes compared with 22,000 for the same period in 2001. Third-quarter sales activity increased by 5 percent with all of the gain coming in suburban areas, where new home sales increased by 11 percent. The Ohio Association of REALTORS^® reported that existing home sales activity in that State remained on a record-breaking pace through September 2002, posting best-ever marks in both homes sold and average sales price for the first 9 months of the year. Sales activity in the Cleveland area increased 6 percent over the first 9 months of 2001, and activity in Cincinnati and Columbus increased by 3 to 4 percent. In Michigan the Grand Rapids Association of REALTORS^® reported that sales of existing homes for the first 9 months of the year increased by 11 percent.

Multifamily construction activity in the region continued to show increased strength in 2002. Permits were issued for 47,300 units through September, up 8 percent from the first 9 months of 2001. Increases of 37 percent and 32 percent, respectively, were reported in Indiana and Minnesota. Apartment construction activity in the Indianapolis area is ahead of last year’s pace despite vacancy rates in the 9- to 10-percent range. CB Richard Ellis of Indianapolis reported that 2,700 new apartment units are likely to enter the market in 2002 and another 2,800 units in 2003 compared with 1,900 new apartments in 2001. In north Marion County and south Hamilton County, where apartment construction is concentrated, rent concessions are commonplace.

The Minneapolis-St. Paul area continued to be one of the region’s most active markets for multifamily construction. Building permit activity in the first 9 months of 2002 was up 43 percent to 5,200 units. Apartment vacancies in the metropolitan area have been climbing for the past 2 years because of the weaker local economy, according to GVA Marquette Advisors, but the market remains tight.

In the Chicago area multifamily activity is at a historically high level, according to Marcus & Millichap’s third quarter 2002 Apartment Research Report. Condominiums and townhouses for sale represent most new units; apartment construction is limited to high-end units in downtown Chicago and the far suburbs. The apartment market remains balanced overall, but the vacancy rate in the metropolitan area increased to 6 percent in September 2002 compared with 4 percent last year. Downtown apartment occupancy improved to 93 percent in the second quarter from 88 percent earlier in the year, but concessions of 1 to 2 months’ rent remain commonplace. Developers continue to show strong interest in the downtown area. Approximately 2,500 new luxury apartments are likely to enter the market in the next 2 years.

Milwaukee’s downtown revitalization is expanding to include the nearby neighborhoods of Brewers Hill, Walkers Point, and west Milwaukee, according to the city’s Department of City Development. The planned $300 million redevelopment of a former Pabst brewery into 300 loft apartments and entertainment and retail space will be the largest project in the downtown area. The Apartment Association of Southeast Wisconsin reported a balanced to tight rental market in the Milwaukee area.

Conditions in Ohio’s major rental markets were mixed. The Columbus apartment market loosened in 2002 because of slower economic growth and increased construction of new rental units. The Danter Company reported that the vacancy rate increased to 8 percent in the third quarter. Downtown Columbus will likely see significant multifamily development during the next 10 years. The city plans to stimulate construction of 1,000 new apartments and condominiums annually. Encouraged by the city’s revitalization plan for downtown and the proposed use of tax incentives in the area, apartment developers plan to start construction of four rental projects with a total of approximately 300 units by next summer. Despite Cleveland’s soft apartment market overall, developers continue to exhibit strong interest in the downtown area. A record 500 new rental units opened in downtown Cleveland in spring 2002; another 400 units will come online during the next 12 months.

In the Cincinnati area, the apartment vacancy rate declined in the past 9 months to approximately 8 percent. One of Cincinnati’s biggest residential projects is City-West’s 1,000 new apartments and homes, which are being developed with $50 million in HOPE VI funds provided by the Department of Housing and Urban Development. The Greater Dayton Apartment Association reported that the market also tightened in 2002 with second-quarter vacancies in the 8- to 9-percent range, down from 11.5 percent in the second quarter of 2001. The downtown rental market is strong because of increased demand for new apartments by young professionals. Several projects that opened in the third quarter are leasing up rapidly.