The economy in the Pacific region during the 12 months ending February 2003 changed little. Nonfarm employment declined by 51,000 jobs, 0.3 percent compared with the previous period. However, regionwide employment is only 1 percent below its peak 2 years ago. In California modest growth in education and health services, retail, and government was offset by continued weakness and job losses in the high-technology manufacturing and information sectors, especially in the San Jose and San Francisco areas. Despite job growth in Southern California and the Central Valley, losses in the Bay Area pulled total employment for the state down 0.5 percent in the 12 months ending February 2003. In Arizona, Nevada, and Hawaii a gradual recovery in travel and tourism boosted employment growth to just below 1 percent in both states.

The regional unemployment rate averaged 6.5 percent in the 12 months ending in February, up from 5.6 percent during the previous 12 months. Hawaii had the lowest rate in the region at 4 percent. The unemployment rate in Nevada was 5.5 percent and Arizona’s and California’s rates averaged 6.1 and 6.7 percent, respectively.

Single-family production as measured by building permit activity and sales of new homes in the Pacific region were extremely strong during the first quarter of 2003. Permits were issued for 216,000 single-family homes in the 12 months ending March 2003, a 17-percent increase over the previous 12 months. In Hawaii the number of new single-family permits grew by more than one-third due mainly to the state’s improved economic conditions. Permit activity in Arizona and California increased by 15 and 20 percent, respectively. Nevada recorded a 6-percent increase in activity as a result of strong demand in Las Vegas, and new home sales in the metropolitan area reached a near record in the first quarter, with 5,189 new homes sold, according to the Las Vegas Housing Market Letter. New home sales in the Phoenix area during the first quarter were nearly 12 percent ahead of the comparable year-earlier period.

Existing home sales also reflected strong demand in the Pacific region during the first quarter. Sales in California nearly equaled the record level set in the first quarter of 2002. The annual rate of sales as of the first quarter of 2003 reached 573,000 homes, and the median sales price rose to approximately $340,000. Sales have been very strong in the Southern California area. In Honolulu first-quarter existing sales increased notably, and both Las Vegas and Phoenix recorded record-level activity. Among major metropolitan areas the San Francisco Bay Area was the only market to experience softer conditions, as sales of new and existing homes fell 9 percent according to DataQuick.

Multifamily building permit activity in the region has maintained a strong pace, totaling almost 62,000 units in the 12 months ending March 2003—a 17-percent gain. Activity in California totaled 42,000 units, up 11 percent, and in Arizona the number of units increased 18 percent. In Nevada builders received permits for more than 9,000 units in the 12-month period, a 39-percent increase. However the activity in the prior 12 months had been unusually low. Due to an improving condominium market in Hawaii, multifamily production increased 150 percent, 1,744 units over the previous 12-month period.

Rental market conditions were generally balanced in the Pacific region during the quarter, although the continued movement from renting to homeownership has affected the upper end of the rental market in several areas. Vacancy rates in the rental markets in the San Francisco Bay Area typically ranged from 5 to 6 percent. Conditions have not changed in the stronger North Bay counties, but they have softened in the upper rent ranges of the markets in West and South Bay’s high-technology-influenced areas. Market conditions have eased in the Sacramento rental market, evidenced by the increase in vacancy rate from 3 percent 2 years ago to 4.5 percent as of the first quarter of this year. In Southern California market conditions were the strongest in the region.

The Los Angeles County rental market remains tight; however, increased vacancies in units priced over $1,000 have increased the overall apartment vacancy rate to 4.5 percent. Local sources indicate that landlords have cut rents and increased incentives to improve occupancy at developments in the higher rent ranges. The overall vacancy rate in Orange County increased to 5.5 percent and in Ventura County to 4.5 percent due to higher vacancies in upper-end units as well. In San Diego County the vacancy rate rose to 6.5 percent as a result of the number of new units entering the market and increased vacancies in upper-end apartments. The Riverside-San Bernardino area remains balanced with a vacancy rate of 7 percent. Due to the lack of new apartment construction, the South Coast portion of Santa Barbara continued to be the tightest rental market in Southern California with a vacancy rate of approximately 4 percent.

Honolulu rental markets tightened from last year’s 8-percent vacancy rate to a more balanced rate of approximately 6 percent as of the first quarter, and a 2-percent annual increase in rents reversed the declining rent trend of several previous years.

The Las Vegas apartment market remained highly competitive with a vacancy rate of 9 percent according to a survey of large apartment complexes by CB Richard Ellis. Concessions are common and are typically 1-month’s free rent. In the Phoenix area the slower economy, fewer snowbirds, and more renters moving to homeownership resulted in a very low rate of absorption of new units during the first quarter of 2003, typically one of the strongest periods of the year. Data from Arizona State University indicate the rental vacancy rate in Phoenix as of the first quarter has increased to 10 percent compared with 8 percent for the first quarter of 2002. During the past 12 months apartment managers have limited increases in asking rents to less than 1 percent. Concessions are widespread and significant.