The Midwest economy continued to slow in the third quarter of 2001. All States in the region registered job losses during the 12 months ending in September. Nonagricultural employment declined by 111,000 jobs. Declines in manufacturing employment offset gains in the services, government, and construction sectors. The unemployment rate in the region increased to 4.6 percent as of September 2001 compared with 3.7 percent in September 2000.

Buoyed by low interest rates, residential construction has held up well, whereas commercial office construction was down in response to slower absorption and increased competition. The market for sales housing in the region remained strong. Second-quarter 2001 existing sales were at an annual rate of 929,000 homes, the second highest sales volume in the past 10 years. Preliminary information suggests that sales activity in the third quarter remained strong in most States. The Ohio Association of REALTORS^® reported a record 84,800 existing homes sold in the State during the first 9 months of 2001, even though the average sales price was up 3 percent to $140,900. Existing home sales in the Cincinnati and Columbus areas in the first 3 quarters of the year totaled 16,400 and 15,700 homes, respectively—a 4-percent increase. In Cleveland, the 16,900 homes sold represents a 1-percent gain.

In Minnesota, sales of existing homes remained strong in Minneapolis-St. Paul, Rochester, and St. Cloud. The Minneapolis Association of REALTORS^® reported sales activity in the Twin Cities area in the first 9 months of 2001 up 8 percent, whereas the median sales price increased by 13 percent to $169,900. The Illinois Association of REALTORS^® reported 82,000 existing homes sold in the State for the first three quarters of 2001, nearly identical to 2000’s high volume for the same period. In the Detroit-Ann Arbor area, existing home sales for the first 9 months were down 1 percent, whereas the Grand Rapids area recorded a 7-percent sales gain compared with the same period a year earlier.

Homebuilding in the Midwest region has also remained strong. Building permits were issued for 155,170 single-family homes in the first 9 months of 2001, 1 percent above the high levels for the same period in 2000. Activity was up in every State except Michigan and Minnesota. Indianapolis area builders expect 2001 to be one of the best years for new home construction in a decade, as single-family permit activity for the year through September increased 16 percent.

Detroit builders will likely start construction of 18,000 to 19,000 new homes in the metropolitan area this year, compared with 21,000 new homes in 2000, according to Housing Consultants Inc. The Builders Association of the Twin Cities reported that home construction in the Minneapolis-St. Paul area strengthened in the third quarter of 2001, but activity for the first 9 months was down 3 percent to 12,600 new single-family homes. Builders are optimistic about new home sales and home construction in 2002 based on a strong turnout of prospective buyers at the Parade of Homes Fall Showcase held throughout the metropolitan area during September.

Apartment markets in the Midwest remain sound, with occupancy in the 93- to 97-percent range as of the third quarter of 2001. Multifamily building permit activity in the region during the first 9 months of 2001 totaled 43,800 units, a 5-percent decline compared with the same period in 2000. All States in the region recorded decreases in multifamily activity except Wisconsin. Madison’s healthy economy has kept the rental market tight. Apartment vacancy rates have been 4 percent or below for the past 3 years, and rents have increased by 5 percent annually. Apartment construction activity in the first 9 months of 2001 continued to show strength, with multifamily permit activity up 16 percent to 1,580 units.

In Minnesota’s tight rental markets, HUD is providing mortgage insurance for a significant number of new apartment units. Sixteen FHA-insured rental projects with 1,500 units are under construction. Three other FHA-insured apartment developments, 1 in Rochester and 2 in suburban Minneapolis-St. Paul, recently opened to strong market response and are leasing at rates of 12 to 22 units per month.

In Ohio, a record 3,000 new apartment units are expected to enter the Cincinnati market in 2001. Third-quarter apartment vacancies in the metropolitan area were in the 6- to 7-percent range, up from 4 to 5 percent in the third quarter of 2000. The Cincinnati area apartment market is competitive, with vacancies up in all submarkets and concessions widespread as of the third quarter of 2001, according to CB Richard Ellis. Cleveland continues to see strong developer interest in the downtown apartment market, with 640 new units in 9 separate projects under construction or rehabilitation as of September 2001. In Columbus, the Danter Company reported that 4,500 new apartment units entered the market in 2000, and another 4,000 rental units are likely to come on line in 2001. Apartment vacancies are expected to hold steady in the 5- to 6-percent range because of the healthy local economy and strong job growth. According to Danter, the market at the low end (below $500) has a vacancy rate of approximately 9 percent. Conditions in the middle ($500–$700) are balanced, and the high end ($800 or more) is increasingly competitive because of the number of new rentals entering the market.

Michigan’s major metropolitan areas are seeing balanced apartment markets, in which vacancies range from 4 to 7 percent. Multifamily building permit activity in the Detroit-Ann Arbor and Grand Rapids areas was up 22 percent and 19 percent, respectively, through the first 9 months of 2001. Developer interest in downtown Detroit is strong, particularly in the Campus Martius area, where Compuware Corporation is constructing a new headquarters and will add 3,000 jobs downtown by 2002. The Greater Downtown Partnership Corporation reported that 650 new market-rate apartments are under construction and another 600 rental and sales units are planned for the area. In suburban Oakland and Wayne Counties, apartment absorption continues to be good. One developer reported that new projects in Canton and Novi are leasing 10 to 12 units a month at rents averaging $1,200 for a two-bedroom unit. Encouraged by good market response, the developer plans additional phases up to 500 units in 2002.

Spotlight on Chicago, Illinois

The Chicago metropolitan area’s economy remains strong, although employment growth has slowed during the past 3 years. Nonagricultural wage and salary employment increased by 50,000 jobs annually, or 1.3 percent, in both 1999 and 2000, compared with 2 percent annually in 1997 and 1998. In the 12 months ending September 2001, total employment in the area declined 1 percent, or 32,000 jobs, with much of the loss occurring in the manufacturing sector.

Construction has been one of the growing sectors in the local economy. One of the biggest projects planned in the area is the $800 million expansion of McCormick Place Convention Center, which is expected to add 21,000 jobs. Commercial office development has been particularly robust, with 48 projects or 100,000 square feet or more completed in the past 4 years, and 21 projects totaling approximately 7 million square feet currently under construction. Occupancy in the completed developments averages 92 percent. Development in Chicago’s downtown is responsible for one-third of the estimated 30 million square feet total of new office space that has entered the market since 1998. However, beginning in 2000, the market began to soften as the economy slowed. Office vacancy rates in downtown and suburban Chicago were up to 12 and 15 percent, respectively, as of the second quarter of 2001.

According to the 2000 census, the population of the 9-county Chicago metropolitan area increased an average 1.2 percent annually to 8.3 million. During the previous decade, Chicago recorded its first increase in population—112,000 people—in 50 years. Along with the population growth, approximately 300,000 new households were added in the metropolitan area, substantially affecting the Chicago area housing market.

Residential construction activity in the past 5 years was strong throughout the Chicago area owing to a healthy local economy and growing population. From 1996 through 2000, single-family building permits averaged 25,500 units annually. Although less than in previous years, strong demand has helped maintain the high levels of activity. Single-family permits in the metropolitan area totaled 21,500 units in the first 9 months of the year, up 2 percent from the same period in 2000. Home construction in areas such as southwest Aurora, Bollingbrook, and Romeoville has been very active, meeting the increased demand for new homes, particularly for first-time buyers.

As a result of the continuing strong demand for housing in Chicago, builders took out permits for an average of 5,700 homes and apartments annually in 1999 and 2000 compared with 3,600 annually during the previous 2-year period. Significant residential redevelopment is occurring in neighborhoods throughout the city, several with combinations of Federal, State, and/or local government financial assistance. One of the biggest is the $100 million Lake Park Crescent development of mixed-income housing planned for the south side on land formerly occupied by public housing. The development will include more than 500 homes, half of which will be for sale, and is expected to break ground in spring 2002. Responding to the increased demand for housing, the city of Chicago in the past 2 years committed $710 million to support 25,000 units of affordable sales and rental units.

The Chicago area apartment market continues to show strength. Multifamily construction activity for the first three quarters of 2001 was up 4 percent to 8,700 units. CB Richard Ellis reported that 2,400 new apartment units are likely to enter the suburban market this year, and another 1,500 are expected in 2002. Apartment occupancy in the metropolitan area as of the third quarter of 2001 was 95 percent overall and ranged from 94 percent in DuPage County to 96 percent in Lake and northwest Cook Counties. Rents in projects with 100 units or more averaged $847 a month, up 3 percent from 2000.

Chicago’s downtown apartment market is balanced, but rental vacancies in 2001 have begun to drift upward. A third-quarter survey by Appraisal Research Counselors recorded a 7-percent vacancy rate, up from 3 percent in the third quarter of 2000. For the first time since the early 1990s, concessions are being offered to prospective tenants. Property managers attributed the more competitive market conditions to employee transfers and job cutbacks in the area.