Nonfarm employment in the Midwest region declined by 150,000 jobs, or less than 1 percent, between February 2002 and February 2003. All states recorded declines in employment. The manufacturing sector accounted for the largest number of losses; Michigan, Ohio, and Illinois collectively lost more than 80,000 jobs in this sector. Private surveys of business conditions in the first quarter of 2003 indicate slowing economies in the Chicago, Milwaukee, Detroit, and Grand Rapids metropolitan areas compared with the first quarter of 2002. The unemployment rate in the region was 5.8 percent as of February 2003, up from 5.7 percent in February 2002. Rates for individual states ranged from a high of 6.6 percent in Michigan to a low of 4.3 percent for Minnesota.

Despite the slow Midwest economy existing home sales in 2002 totaled a record 994,600, up 5 percent from 2001. Sales activity in the first quarter of 2003 was mixed in the region’s major markets. The Minneapolis Area Association of REALTORS^® reports that 2003 began stronger than expected because of mild January weather, low mortgage interest rates, and the good inventory of homes for sale. Existing home sales activity in the Twin Cities through March 2003 totaled 9,500 homes, with an average sales price of $224,000. In Indianapolis poor weather slowed listings in the first few months of 2003, but strong demand still brought out prospective buyers, according to the Metropolitan Board of REALTORS^® MLS. The Ohio Board of REALTORS^® reports that existing home sales in the state through March were down slightly from record sales in the first 3 months of 2002.

Chicago Title and Trust Company reports that sales of new and existing homes in the metropolitan area were strong in 2002, and activity in the first quarter of 2003 continued to show strength. Existing home sales through March totaled 21,200 homes, equal to the high sales volume in the first quarter of 2002. New home sales in suburban Chicago also remained strong, with contracts up 2 percent to 3,800 new homes. Residential construction in the city of Chicago continues to boost neighborhood revitalization. In Woodlawn, one of the city’s poorest neighborhoods, construction of 140 new homes and rehabilitation of a significant number of existing homes have encouraged additional private and public investment in the community, the first in 30 years. Significant residential development of new mixed-income housing during the next 5 years is also planned for the Bronzeville community. Construction of 3,700 new homes and apartments will replace demolished public housing units at Stateway Gardens and Robert Taylor Homes. The city of Chicago committed $267 million for affordable housing in 2002, bringing the city’s total expenditure during the past 4 years to 43,000 housing units and $1.14 billion. Helping to revitalize the city’s Near North neighborhood, the Wrigley Corporation’s $84 million research center will start construction in 2003 in the Goose Island Manufacturing District, which is attracting new industry to the area.

Builders regionwide are optimistic about demand for new homes in 2003. In Minnesota The Builders Association of the Twin Cities reports that 2003 should be another good year for new homes. Minneapolis/St. Paul-area builders entered a record 963 model homes in the Parade of Homes Spring Preview held throughout the metropolitan area in February. Building permits for new homes in the first 3 months of the year were up 9 percent to 3,620. Builders in Ohio expect new home construction will be strong in 2003 but may not match activity in 2002. The Wisconsin Builders Association reports that home builders remain optimistic about residential construction in 2003 because of low mortgage interest rates.

The Building Industry Association of Southeast Michigan expects current strong demand for new homes to continue through the year. Townhomes and duplexes are becoming more popular with homebuyers seeking moderately priced homes. One Detroit area lender reports that mortgage applications in the first quarter of 2003 equaled the strong activity in the first quarter of 2002. The market for new homes in the Indianapolis area remains strong. MarketGraphics, a real estate research firm, anticipates that the metropolitan area will need 13,000 to 14,000 new homes annually through 2007 to satisfy demand.

The market for all types of housing for seniors has been very active in the Midwest. The American Seniors Housing Association’s 2002 Construction Report ranked Michigan, Illinois, Minnesota, Indiana, and Wisconsin in the top 10 states for construction of senior housing. The Detroit area was the top metropolitan area in the nation with more than 2,000 housing units under construction. In Minneapolis-St. Paul developers have an estimated 2,000 new units, including sales and rentals, likely to come on the market in 2003, according to Maxfield Research’s Senior Update .

Multifamily building permit activity in the region was down 12 percent to 10,100 units through March 2003 compared with the first 3 months of 2002. In Minneapolis GVA Marquette Advisors reported that the Twin Cities apartment market continued to loosen in 2003 because of the slower local economy and renters moving to homeownership. Apartment vacancies in the metropolitan area increased from 4.8 percent in the first quarter of 2002 to 6.5 percent in the first quarter of 2003. The apartment vacancy rate in new projects built since 1995 was 11.1 percent compared with 5.5 percent in older projects built before 1980. The overall vacancy rate is expected to reach 7 percent in the second quarter of 2003 because of the increased supply of 1,000 new apartment units likely to come on the market.

As of the first quarter of 2003 the Chicago metropolitan area apartment market remains somewhat soft. Hendricks & Partners Forecast 2003 expects apartment vacancies in the metropolitan area to continue increasing throughout the year because of the slow economic recovery. Rent concessions are expected to remain widespread. Apartment occupancy in suburban Chicago for the first quarter of 2003 was 91 percent, unchanged from the first quarter of 2002, according to CB Richard Ellis. Occupancy ranged from 89 percent in west DuPage County, where employment cutbacks in high-technology industries continued in early 2003, to 92 percent in northwest Cook County. The same report estimated 1,800 apartment units under construction in suburban Chicago in the first 3 months of 2003 compared with 3,000 units for the same period last year.

Despite the softer conditions in both the sales and rental markets in downtown Chicago developer interest in the area remains high. One of the biggest projects planned for downtown Chicago is the 1,600-unit development of luxury apartments and condominiums in the Fulton River district, which is expected to start construction in 2004 and take 5 years to complete.

The Indianapolis apartment market is predicted to remain soft for the remainder of 2003 given the expected limited job growth and continued levels of apartment development activity. Hendricks & Partners’ Forecast 2003 estimates that the vacancy rate will exceed 11 percent by the end of 2003, up from 10 percent in 2002. Hendricks & Partners also expects that Columbus, Ohio-area apartment vacancies will increase throughout the year because of an estimated oversupply of 1,700 new apartment units and the addition of 1,100 new rental units. Cleveland’s rental market also will continue to loosen in 2003 because of the slower economy and is expected to reach a vacancy rate of 7 percent.

Detroit’s apartment market also became more competitive in 2002 as the local economy slowed and renter household growth and low mortgage interest rates enabled renters to become homeowners. Hendricks & Partners expects apartment vacancies in the metropolitan area to continue to increase in 2003 to around 7 percent, up from 6 percent last year. One owner of 10,000 new and existing rental units in the metropolitan area reports that vacancies remained above 10 percent in the first quarter of 2003.