Aerospace and high-technology industries continue to boost the Northwest economy. Wage and salary employment grew by a healthy 3.1 percent (145,240 jobs) from the third quarter of 1996 to the third quarter of 1997. Washington State led the region with the highest annual rate of growth (3.7 percent). Labor markets remained extremely tight throughout the region as unemployment levels continued to decline. Washington experienced the sharpest decline with a 1.1-percentage-point drop over the past 12 months to 4.8 percent as of the third quarter of 1997. Unemployment rates were very low in the major metropolitan areas, particularly Seattle (3.4 percent), Boise (3.6 percent), and Portland (4 percent).

Most of the employment growth in Washington is concentrated in the Puget Sound region (the Seattle, Tacoma, and Bremerton metropolitan areas). According to the Puget Sound Economic Forecaster, between 30,000 and 35,000 new jobs will be added in the aerospace industry from 1996 through 1998. Long-term employment gains through 2002 will be constrained by a shortage of workers, inadequate infrastructure, and rising housing costs.

In-migration will continue to be strong in the Northwest region through the end of the decade, particularly in Washington. Population growth from increased in-migration is picking up again in Oregon.

Single-family building permit activity in the first 9 months of 1997 totalled 44,205 units, down only 3.6 percent from the very strong first 9 months of 1996. Declines were reported in every State but Alaska, which recorded a 9-percent gain. Multifamily permit activity in the Northwest region totalled 18,948 units in the first 9 months of 1997, almost unchanged from the same period in 1996. However, conditions in the region were mixed. In Oregon the number of multifamily units through September was down 13 percent to 7,367 units. The decline was a result of cutbacks in activity in the Portland and Salem areas in response to an easing of demand. In 1995 and 1996, production in the two areas totalled an average of 8,375 units annually. In Washington State multifamily permit activity (9,943 units) was up 12 percent due to continued growth in demand in the Puget Sound area.

According to the National Association of REALTORS^®, the annual rate of existing home sales in Washington State as of the third quarter totalled 124,600, a 25-percent increase. Existing sales activity in Oregon and Idaho was also up 5 and 10 percent respectively, compared with sales as of the third quarter of 1996. The median sales price during the third quarter of 1997 was $175,300 in Seattle, $155,400 in Portland, and $103,200 in Boise.

The economic boom has increased demand for new housing in the Puget Sound region far beyond the available supply, especially in King County (Seattle). With the strong resistance in some cities to high-density developments, as well as the increasing scarcity of buildable sites, complex land-use regulations, and long processes to receive permits, the situation is not likely to change. The Washington Center for Real Estate Research recently conducted a statewide survey and found that housing will continue to be less affordable and less available to low- and moderate-income households.

The demand for new apartment units in the Seattle metropolitan area is very strong. According to the Dupre+Scott Apartment Vacancy Report for September, the 1997 apartment vacancy rate in the metropolitan area was 2.6 percent, the lowest since March 1980. Rents are up 7.5 percent on average compared with a year ago, and concessions have all but disappeared. Moderately priced apartments are scarce, except in outlying suburbs. In contrast, the other two rental markets in the Puget Sound area (Tacoma and Bremerton) are balanced. Because of traffic congestion in the Seattle area, commuting from these markets is not a viable option for many people.

In response to the tight market, Seattle's multifamily housing building activity increased significantly in 1996 to almost 6,800 units, compared with an average of 4,200 units annually from 1991 to 1995. In the first 9 months of 1997, permits were issued for 5,922 units. At the current pace, 1997 activity should meet or exceed 1996 levels. Recent multifamily housing production was still far below the 9,600 units permitted annually during the 1987-90 boom and the level needed to meet the projected demand.

The rental market in Boise remains soft despite improvement during the second and third quarters of 1997. As of the third quarter, the rental vacancy rate was 8.5 percent.

Spotlight on Portland-Vancouver, Oregon-Washington

Since 1990 employment in the Portland-Vancouver area has increased by 25 percent, as some 184,500 jobs were added to the employment base. The diversity of the economy has deepened significantly during this period as well. Employment in the following sectors has increased by at least 50 percent: office equipment, electronics and electronic equipment, fabricated metals, business services, motion pictures and amusements, engineering and management services, private education, and social services. The only two industry groups to experience serious job losses have been the lumber and wood products industry and the measuring instruments industry, each having contracted by approximately 20 percent during this period.

During the 12-month period ending September 1997, wage and salary employment rose by 32,950 (a 3.7-percent increase) to 917,400. Stimulated by hiring in the semiconductor and office equipment industries, employment in manufacturing increased by 5.3 percent. Firms in the semiconductor industry are forecasting the addition of another 7,000 jobs by the year 2000, despite current chronic shortages of skilled labor. Labor shortages have not been confined solely to the high-technology industries. The unemployment rate had fallen to 3.9 percent as of September 1997. Labor shortages are reported for a wide variety of occupations in both the manufacturing and nonmanufacturing sectors. Employment projections call for a greater-than-20-percent increase between 1996 and 2006, with demand highest for computer scientists, database administrators, home health care aides, industrial engineers, machine tool operators, social welfare aides, and semiconductor processors.

Single-family building permit activity in the first 9 months of 1997 totalled 9,163 units, off 3 percent compared with the same period last year. The slight decline was due largely to a lack of readily available building sites. Multifamily building permit activity totalled 5,277 units, a 5-percent drop from the comparable period in 1996. The decline reflected the substantial numbers of new units in the pipeline and the more competitive market conditions. Multifamily activity has averaged 7,125 units annually during the past 33 months.

Sales of new and existing single-family homes equalled 21,366 units through the first 9 months of 1997, off slightly from 21,652 houses sold during the same period last year. The median price for 1997 sales to date was $148,000, up 8 percent from the same period in 1996. The market for homes priced below $100,000 has tightened considerably in the past year, with a substantial reduction of the inventory in the aftermath of a very busy 1996. In 1996 sales below $100,000 made up 14 percent of the activity; in 1997 the share has dropped to 9 percent.

Housing affordability in the Portland-Vancouver metropolitan area has been a high-profile issue. The rapid escalation in land prices has been a major factor in driving up prices for new construction. Lot prices, on average, have been increasing at 30 percent per year during the past 3 years as the supply of developable land has been depleted over the course of the current residential construction boom. In response to skyrocketing land prices and continued strong population growth, Portland's regional government recently expanded the area's urban growth boundary by 4,500 acres, an increase of nearly 2 percent.

Rental market conditions have been balanced throughout 1997, with the areawide vacancy rate hovering around the 5- to 5.5-percent range. After several years of relatively tight rental market conditions, apartment seekers have been enjoying a greater range of opportunities in several of the area's submarkets. Downtown Portland has seen two low- and moderate-income targeted projects with a total of 200 units start leasing-up in 1997. Initial rent-up has been very good. During the next few years, several hundred rental units aimed at all segments of the market are scheduled for construction in Portland's River District, 10 blocks from Portland's downtown core. The River District, formerly a railroad yard, is the largest remaining undeveloped parcel of land in the city.

The bulk of apartment construction in the Portland-Vancouver area has consisted of moderate- and high-rent garden-style apartments. Most of the complexes have been located near the high-technology employment centers or along the Westside light rail line, which is to be completed in 1998. Tri-Met, the Portland area's public transportation agency, has promoted apartment construction near transit stations located in the city as well as all along the rail line to its Hillsboro terminus, 11 miles west of Portland.