The New England economy, led by Massachusetts, Connecticut, and Maine, continued to expand with new job creation, low unemployment, and strong real estate markets. Nonagricultural employment was at 6.7 million in February 1998 -- an increase of 168,600 jobs, or more than 3.1 percent, since February 1997. Massachusetts and Connecticut contributed about 80 percent of the increase, but all States reported gains. The unemployment rate in New England was 3.6 percent in February 1998, down from 4.6 percent in February 1997. Temporary employment suppliers are continuing to expand their businesses as labor markets throughout the region remain very tight. New Hampshire and Massachusetts had the lowest unemployment rates of 2.8 percent and 3.3 percent, respectively.

During the first quarter of 1998, home construction -- as measured by single-family building permits -- was up 18 percent from the first quarter of 1997. Increases ranged from 13 percent in Massachusetts to 39 percent in Vermont. Only Rhode Island posted a decline. The largest total of single-family permits was recorded in Massachusetts, where 2,021 units represented 47 percent of the New England total of 4,326 units.

Continuing the trend of the past year, the number of multifamily housing units permitted increased substantially. For the first quarter of 1998, the number of multifamily units issued permits was 19 percent higher than the number of the first quarter of 1997. The increase was concentrated in Massachusetts and Connecticut, the two States accounting for 82 percent of the regional total. Connecticut activity was predominantly in the Stamford-Norwalk, New Haven, and Hartford areas. After several years of merely absorbing excess supplies, rental housing development is being bolstered by a strong economy, rising rents, and favorable construction costs. Existing home sales continue to be the driving force in the New England residential real estate markets. The favorable mortgage market and strong economy are strengthening the demand of move-up buyers. Excluding New Hampshire and Vermont, where data were not available, the annual rate of sales in the 4 other States increased by almost 23 percent, from 154,400 as of the fourth quarter of 1996 to 189,400 in the fourth quarter of 1997. The rate of homes sales in Rhode Island increased by 24 percent in the fourth quarter of 1997 compared with the fourth quarter of 1996, while sales jumped 26 percent in Massachusetts to an annual rate of 99,400. Home prices in New England were up 5.2 percent in the fourth quarter of 1997 compared with the same period in 1996.

According to the Massachusetts Association of REALTORS^®, the average price of homes sold in February 1998 was $217,000, up from $187,000 in February 1997 for an increase of 16 percent. The condominium market also strengthened considerably, with the number of sales in February 1998 up 16 percent compared with February 1997. In same period, the average sales price increased 2.7 percent to $116,000. Tighter rental market conditions and rising rents appear to be contributing to increased condominium sales.

The rental markets in most New England areas are still very strong, especially those along the transportation corridor from New York and Fairfield County, Connecticut, through Hartford and Boston, and up to Portland, Maine. The strong job growth in these markets is providing continued demand, as evidenced by increasing rents and the beginning of a development cycle of new rental housing. Vacancy rates for good-quality apartments in these strong markets are in the low single digits, and absorption rates for new units are good.

Spotlight on Worcester, Massachusetts

Over the past several years, the Worcester downtown area experienced renewed public and private investment. Recent economic initiatives have created jobs and rekindled housing demand. In 1992 the Worcester Redevelopment Authority (WRA) launched a large-scale urban renewal project called the Medical Cities Complex, which involved St. Vincent Hospital and Fallon Health Care. WRA used a combination of State funding and eminent domain powers to assemble 36 separate parcels -- covering 30 acres of mostly industrial land -- into this project. More than $215 million of private investment was leveraged via $42 million in public funds. WRA also relocated a railroad from the middle of the parcel and contributed infrastructure improvements such as new roadways and sidewalks.

Medical Cities is expected to bring 2,400 employees daily and 1.5 million visitors annually to downtown Worcester and an estimated $1.6 billion in economic activity in its first 10 years. Downtown office space is in demand because the existing supply is being absorbed. Class A space in prime locations is renting for up to $22 per square foot, and rehabilitated Class C office space is renting for $12 per square foot.

WRA plans to develop another 150-acre section just north of the Worcester Common Outlets shopping mall. The agency is also rehabilitating Worcester's Union Station, which is being restored as a bus port and train station.

Nonfarm employment in the Worcester area continued to expand. Comparing the first 2 months of 1998 with the first 2 months of 1997, employment increased by 6,500 jobs to 223,800. Trade, manufacturing, and State government experienced the largest gains. Unemployment decreased from 4.2 percent to 3.8 percent during this same time period.

New rental housing is being absorbed well after a slump in the early 1990s. From 1991 through 1994, the number of multifamily units permitted averaged approximately 145 units per year. From 1995 through 1997, the average increased to 232 units per year. According to local real estate professionals, vacancies are scarce and the market is tight.

The sales housing market has held solid in recent years. Total single-family permits authorized during the 1990s averaged more than 1,800 units per year, outpacing the average of about 1,600 units per year during the 1980s. Single-family permits authorized for the first quarter of 1998 were up 25 percent from the first quarter of 1997, suggesting continued expansion for 1998.

Home sales rose 8 percent -- from 676 to 731 -- and the median sales price rose by about 3.4 percent in the first quarter of 1998 compared with the same period in 1997. The median sales price in March 1998 was $139,000. Condominium sales improved from 96 units to 118 units, and the median sales price increased from $85,000 to $95,000. Local real estate professionals expect a continued high level of sales activity for 1998.