The Pacific Region’s economy gained 110,000 jobs—a modest 0.6-percent increase—in the 12 months ending March 2002. California added 92,500 jobs, as most of Southern California and the Central Valley continued to grow during the period. The worst of the layoffs in the technology- and tourist-driven San Francisco Bay Area seems to be over. The Bay Area will be boosted from the start of construction this quarter on the State’s largest public works project, the $3 billion, 5-year effort to replace the east span of the San Francisco-Oakland Bay Bridge, as well as the ongoing $1.6 billion Oakland Airport expansion through 2006 and the recently approved $4.3 billion extension of the Bay Area Rapid Transit system from Fremont to San Jose. California’s job gains are expected to proceed relatively slowly in 2002 but pick up significantly in 2003 as the technology slump subsides.

Hawaii’s nonagricultural employment was off just 0.5 percent in the past 12 months through March, whereas Arizona employment was essentially stable overall in that period. Though well below past growth rates, the slowly recovering gaming economy of Las Vegas area added 18,400 jobs in the 12 months through March, a 2.4-percent increase over the previous 12-month period. Although Orange and San Diego Counties in Southern California still have unemployment rates under 4 percent, the slower economy pushed the regional unemployment rate from 4.7 percent in March 2001 to 6.2 percent in March 2002.

New homebuilding and sales remained on a strong note overall in the first quarter. The 44,491 single-family permits pulled in the first quarter were off 2.7 percent from last year, but production levels are reflecting the divergent economic fortunes around the region. California permits fell 3.6 percent in the quarter to 25,416 units, with a sharp decline in San Francisco area production and a 3-percent drop in Southern California. Single-family units in Hawaii were down more than 16 percent through March; Arizona declined 2.5 percent from the same period a year earlier, and Las Vegas production gained 4 percent.

Sales of existing homes remained robust in most major markets of the region. Home resales in California, as reported by the California Association of REALTORS^®, occurred at an annualized rate of 594,000 for the first quarter of the year, 18 percent above the near-record pace of the year-earlier period. The statewide median in March reached a record $306,000, 19 percent higher than in March 2001. In Southern California, the sales pace during the quarter was up 20 percent over the first quarter of last year, reaching levels not seen since the boom in 1989, and prices set records in most counties. Bay Area resales were up 20 percent as well during the quarter over the first quarter of 2001, recovering after some weakness toward the end of 2001. California metropolitan areas, primarily in the comparatively affordable Central Valley, took the top eight places nationally for 2001 home price increases, ranging from 14 to more than 18 percent. Las Vegas recorded 7,700 resales in the first quarter, a 10-percent gain over the same period last year, when resales set a record. Honolulu resales were up 8.6 percent in the first quarter.

Rental market conditions loosened in a number of major regional markets, with many renters becoming homeowners and slow economic conditions often slowing demand. Multifamily production in the first quarter of 2002 fell by a third to 11,446 units from the year-earlier period in the region. California’s 8,500 multiple units were off by 13 percent, whereas Nevada and Arizona multifamily production fell 55 and 64 percent, respectively, from high levels in the first quarter of 2001. According to a survey by RealFacts, vacancies in the San Francisco Bay Area have climbed from under 2 percent overall in 2000 to 6 percent for apartment properties with more than 100 units. Vacancy levels range from 5 percent or less in Contra Costa and the North Bay to 7 percent in San Francisco and Santa Clara Counties. Bay Area rent increases stood at 6.6 percent between March 2001 and March 2002, a decrease from 10 percent in the previous 12-month period. Many higher end properties that boosted rents during the high-tech/dot.com boom now are reducing them or offering concessions. Sacramento area vacancy has eased from a low of 2.5 percent in early 2001 to 4.5 percent in the fourth quarter of 2001, but average rents are reportedly rising over 6 percent per year.

Southern California rental markets continued to be tight or balanced. Some easing has occurred at the upper end of the market as low mortgage interest rates enabled some of the previous luxury apartment renters to become homeowners, but low- to mediumprice ranges are still tight. Los Angeles County maintained a tight 4-percent vacancy rate overall, but high-priced rental complexes are above 6 percent and are offering concessions. Marcus & Millichap reported rent increases in the low single digits in more upscale submarkets such as Westside Los Angeles, whereas the rents in the low- to moderatepriced rental neighborhoods increased as much as 13 percent. The Riverside-San Bernardino area’s rental communities stayed around 6 percent, with larger developments recording 9-percent rent gains over a year earlier. The rental vacancy rates in San Diego and Orange Counties increased to 5 percent during the quarter. One of the Southland’s highest rates is the 9-percent vacancy rate for luxury rentals in Irvine, Orange County.

After reaching a peak vacancy rate of 9 percent in December, the Las Vegas rental vacancy rate gradually edged down to 8.5 percent in the first quarter of 2002. A number of active submarkets remain at over 10-percent vacancy, and concessions are common. Rent increases have been averaging a modest 1.5 to 2 percent in recent years. Reacting to the more competitive market, multifamily production in the first quarter is off 55 percent from some robust permit levels a year earlier.