The economy in the Pacific region continued to weaken during the third quarter. In the 12 months ending September 2002, the area lost 53,500 nonagricultural jobs, a 0.3-percent decline, compared with 2.3-percent growth in the previous 12 months. Only Nevada managed a 1-percent employment gain in the past 12 months. The other States experienced job losses ranging from a modest 0.2 percent in California to 1.4 percent in Hawaii. California’s employment pattern was highly mixed with slight job increases in Southern and Central California more than offset by the sluggish San Francisco Bay Area high-technology and air-travel-related sectors. San Diego, Riverside-San Bernardino, and Las Vegas maintained the region’s fastest-growing growth rates and were among the strongest in the country. Unemployment in the Pacific region reached 6.2 percent in the third quarter, up from 5.4 percent in the third quarter of 2001. Jobless rates in most major labor markets of California and Arizona have been relatively stable in the first 9 months of the year, as the pace of layoffs has slackened. Nevada’s labor market has seen a significant improvement in the unemployment rate to 5.1 percent in the third quarter of 2002.

Regional residential production, reflected by total building permits, increased by 1 percent to 193,300 units for the first 9 months of 2002 compared with the same period in 2001. Continued favorable interest rates have helped maintain a strong sales market all year. Single-family construction in the region rose 6 percent to 155,000 units for the January–September 2002 period. This comprised 80 percent of total production. New home construction increased 9 percent in California through September 2002, led by a 12-percent gain in Southern California. Benefiting from demand from the more expensive adjacent coastal areas, Sacramento and Riverside-San Bernardino building permit activity increased 13 percent and 27 percent, respectively. Arizona single-family permits increased 7 percent through September 2002. Phoenix continued to have record high levels of home sales.

Resales were also robust in the four-State region, reaching an annual rate of 993,000 as of the third quarter of 2002, a 4-percent increase over levels in 2001 at this time, according to NAR data. Honolulu resales increased 20 percent in the first 9 months of 2002. According to the Office of Federal Housing Enterprise Oversight (OFHEO) index, home prices rose 10 percent or more in the 12 months ending June 2002 in 10 California metropolitan areas.

Builders in the region obtained permits for 38,070 multifamily units through September 2002, off approximately 16 percent from the same period in 2001. The declines ranged from 10 percent in California to 31 percent in Arizona. Demand in the San Francisco Bay Area is balanced overall with tight conditions prevailing in the North Bay counties of Solano, Napa, and Sonoma. According to local surveys, vacancies are beginning to stabilize in the larger, high-amenity properties in San Francisco and Santa Clara Counties. Bay Area rent levels are now just 2 percent above year-earlier levels and tend to be flat or have declined at the upper end of the market. Sacramento and Fresno remain tight with rental vacancy rates of 4 percent, according to local surveys.

Comparatively strong job growth combined with a 20-percent drop in multifamily construction levels this year is keeping the Southern California rental market somewhat tight. Los Angeles, Ventura, and southern Santa Barbara Counties remained tight with overall vacancy rates of 4 percent or less. Orange and San Diego Counties have 5-percent and 6-percent vacancy rates, respectively, but some softness is reported in the upper rent ranges. The Riverside-San Bernardino area remains balanced at 7 percent.

Highly competitive conditions prevail in the largest rental markets in Arizona. In Phoenix the economic slowdown and the increased affordability of sales housing have led to a rental vacancy rate of approximately 8.5 percent. Asking rents have increased less than 1 percent in the past year, and owners are offering the highest level of incentives in a decade. Phoenix builders adjusted by cutting multifamily production. Building permit activity is down 35 percent to 5,134 units through September 2002.