The Pacific region's strong economic growth of 1997 has continued into the first quarter of 1998. Nonagricultural jobs increased by 624,000 in the 12 months ending in February 1998, a 3.8-percent gain over the previous 12-month period. California generated nearly 500,000 new jobs, and 8 of California's metropolitan areas had employment growth rates of more than 3 percent. Arizona's job growth was 4.8 percent (94,000 jobs), surpassing Nevada's 4.2-percent gain of 36,400 new jobs.

The region's single-family home permits increased 11 percent (to 36,190 units) in the first quarter of 1998. Record rains in February 1998 held California's home production increase to 9 percent. Production in Southern California and the Sacramento Valley increased moderately, outpaced by a 27-percent increase in the Riverside-San Bernardino area. The San Francisco Bay Area -- with a 2-percent drop in permits -- and the San Joaquin Valley were most severely affected by the adverse weather. Favorable economic and financial conditions are expected to increase permit activity in 1998 by about 10 percent over 1997's volume.

A 15-percent increase in single-family permits in Phoenix during the first quarter of 1998 was a significant part of the gain for all of Arizona. A growth management initiative covering all Arizona cities with populations of more than 2,500 people may be voted on by the end of the year. Single-family permits in Nevada increased by more than 12 percent in the first quarter of 1998. Las Vegas production was up about 12 percent, reflecting robust sales for most builders.

The strong sales market in California led to an annual rate of more than 620,000 existing home sales as of February 1998, the highest level since December 1988 and up 12 percent from February 1997. The median sales price of $186,000 in February 1998 was 11 percent above the price in February 1997. The increased cost of single-family homes caused some buyers to shift to condominiums. Sales and prices for condominiums in California were up 17 and 18 percent, respectively, in February 1998. Las Vegas resales for the first 2 months of 1998 were 6 percent above the same period last year, and the median sales price of $125,300 was also up almost 6 percent. Existing home sales in Phoenix soared by 20 percent to a record of 11,000 sales in first-quarter 1998, with the $110,000 median sales price up about 5 percent from 1997.

The number of multifamily housing permits issued in the Pacific region increased by 18 percent to 11,700 units through the first quarter of 1998 in response to generally strong rental markets. In California, multifamily permits were issued for 5,000 units -- a 13-percent increase. Activity was up 14 percent to 2,200 units in the San Francisco Bay Area. Current levels of construction are not able to meet demand, and most area markets remain tight. In Sacramento, the recent strong employment growth and tighter rental market conditions have led to increased interest in multifamily development in the area's suburbs.

Southern California rental markets had a 4-percent gain in multifamily permit activity in the first quarter of 1998. The tightest rental markets were in Santa Barbara and Ventura Counties, where rental vacancy rates were less than 5 percent. The overall rental vacancy rates in Orange and San Diego Counties were about 5 percent, and the tightening rental markets in these areas resulted in rent increases. The overall rental vacancy rate in the Riverside-San Bernardino market continued to be about 9 percent, influenced by relatively affordable home prices in Southern California. The rental market in Southern California should continue to tighten as construction levels remain at relatively low levels.

Multifamily permits during the first quarter of 1998 increased by 66 percent in Nevada compared with the same period last year. In the Las Vegas area, permits jumped to 3,800 units, up from 2,200 for the same quarter in 1997. The market is balanced but competitive, with an overall rental vacancy rate of about 7 percent. Vacancy rates are higher in the submarkets experiencing heavy production of upscale apartments, but rent increases remain moderate. The Reno rental market loosened in recent months as it worked to absorb the surge of new production. The new supply pushed the vacancy rate to more than 8 percent, and there are reports of increased difficulty in maintaining rents.

The Phoenix apartment market was balanced, with an overall vacancy rate of less than 5 percent, according to a survey by Arizona State University. The vacancy rate for apartment complexes of 100 units or more was 6 percent. Multifamily permit activity decreased by 8 percent to 2,375 units in the first quarter of 1998 compared with strong 1997 levels. Absorption generally remained strong. Rents were up about 5 percent in 1997, but the rate of increase has been slowing recently.

Spotlight on Los Angeles County, California

The Los Angeles area's economy regained much of the strength lost during the recession of the early 1990s and the Northridge earthquake in 1994. Nonagricultural employment was 3.9 million in March 1998, up 2.5 percent over March 1997.

Between 1990 and 1997, the area lost 70,600 high-paying defense and aerospace jobs, and Boeing recently announced that an additional 6,000 jobs will be cut from facilities located in Los Angeles County. The loss of defense and aerospace jobs has been partly offset by increases in the motion picture, multimedia, and high-technology industries. The motion picture industry gained 55,400 jobs from 1990 through 1997 after 20 years of losing employees to other parts of the United States and to other countries.

Another area that lost jobs in the 1990s was finance and real estate, which lost more than 58,000 jobs from 1991 through 1997. Many of the financial jobs lost were at banks that merged with other banks headquartered in Northern California.

The improvement in the local economy helped the commercial office market. For most of the 1990s, the office rental vacancy rate throughout the county was above 10 percent. But during 1997, vacancy rates in the west side of Los Angeles County and other areas associated with the movie and television industry dropped below 10 percent. The office vacancy rate in downtown Los Angeles remained above 25 percent, although there were signs of improvement as REITs began buying properties in anticipation of an increased demand for office space.

Stimulated by the economic recovery, the population of Los Angeles County increased by 1.4 percent to 9.5 million from mid-1996 to mid-1997. This was a much larger gain than in the previous 2 years and an indication that growth may continue at an annual rate of more than 1 percent in the near future.

Prices for existing homes in Los Angeles County also rebounded during 1997. The median price for an existing home in 1997 was $176,500, a 2-percent increase from the previous year. This is still significantly less than the $212,000 median price for existing homes sold in 1990. Several experts have estimated that existing home prices should rise between 4 and 6 percent in 1998. Within the market area, the trend in sales prices is mixed. The biggest price gains have been on the west side, in areas close to the ocean, and in the more expensive portions of the San Fernando Valley. However, parts of the Antelope Valley are still experiencing price declines.

The Los Angeles rental housing market is also recovering. In 1997, the rental vacancy rate dropped to 8 percent from the almost 10-percent level of two years earlier. The rental "ghost towns" that appeared in the San Fernando Valley after the Northridge earthquake have been largely rebuilt, although many of the rebuilt apartment developments still have above-normal vacancy rates. It is estimated that some submarkets in the San Fernando Valley are still experiencing rental vacancy rates exceeding 10 percent, and the Antelope Valley area has the highest rental vacancy rates at well over 10 percent. The vacancy rates in the west side submarkets are generally less than 5 percent, resulting in rent increases.

The lower home prices of recent years have enabled many former renters to become home-owners. Some of these renters were able to come up with home downpayments through renter earthquake insurance settlements and aid from the Federal Emergency Management Agency.

Improvements in home prices and rental vacancy rates have shown up in building permit activity. The number of single-family home permits issued increased to 6,353 in 1997, 35 percent above the previous year. The number of multifamily housing permits issued increased to 3,476 units in 1997, a 15-percent increase over the 3,032 units permits issued in 1996. These permit levels were still far below the 9,011 single-family and 16,114 multifamily units permitted in 1990.

For the first quarter of 1998, single-family permits were down 3 percent and multifamily permits were down by 5 percent compared with the first quarter of 1997. Heavy rains during early 1998 slowed home construction activity throughout the county.

The Los Angeles area's economy and housing market are expected to continue to improve over the next few years. The only problem on the horizon at this time is the economic situation in Asia; many Los Angeles County companies have parent companies in Asia or have significant financial and trade transactions with Asian companies.