During the 12 months ending in June 2001, employment in the Pacific region rose by 630,000 jobs, a 3.5-percent increase. Employment in California grew 3.2 percent in the period but slowed during the second quarter. More than 60 percent of the 461,000 new jobs in the State were added in Southern California, resulting in continued strong population growth and a robust housing market. Arizona added 64,300 jobs in the past 12 months, a 3-percent gain. However,
downturns in technology manufacturing, tourism, and mining reduced the annual rate of growth to 1.5 percent as of the second quarter of 2001.

While employers in the Phoenix area such as Motorola and Intel are currently downsizing, the local economy will benefit from the completion of Intel’s new chip plant this fall, 3,500 new retail jobs expected at the 1.3-million-square-foot Chandler Fashion Center, and the 1,000 construction jobs scheduled to begin soon at the $334 million Phoenix Cardinals football stadium in Tempe.

Nonagricultural employment in Nevada increased by more than 4 percent in the 12 months ending in June 2001, despite the absence of any large resort openings this year. Nonfarm employment in Hawaii grew 2.6 percent in the same 12-month period due to gains in services and construction. Unemployment in June 2001 ranged from 4.4 percent in Hawaii and Arizona to 5.1 percent in California; in most areas, this represented an increase from the same period in 2000. Employment growth this year is expected to be substantially less than in 2000 while remaining well above national norms.

Pacific region builders are enjoying strong single-family home sales in most major markets, reflected in the building permits issued for 99,400 homes in the first half of 2001. This represents a 7-percent gain over the same period in 2000. In California, single-family permits increased 10 percent with activity increasing 11 percent in Southern California and 28 percent in the Sacramento area. The California Association of REALTORS^® reported an annual rate of existing home sales at 507,000 as of June 2001, off a modest 6 percent from 2000’s record.

Phoenix observers report continued strong traffic in home sales even with reduced employment growth in the area. Single-family building permit activity in the metropolitan area rose 2 percent in the first half of 2000, and existing home sales increased by 5 percent. The Las Vegas Housing Market Letter reports that new and existing home sales were up 10 and 13 percent, respectively, through May. Both are on track to set new records for annual volume. In Honolulu single-family production continues to climb back from the stagnant conditions of the 1990s. Production is up 6 percent in the first half of 2001 over the same period in 2000, whereas resales gained nearly 10 percent in the same period.

For the region as a whole, multifamily production (31,100 units) in the first half of 2001 remained virtually unchanged over the same period in 2000. Activity in California was off 8 percent from the multifamily building permit activity level of 2000, which was the greatest annual total since 1990. Because of high land and construction costs, most apartment construction in recent years has been aimed at the upscale and luxury markets. Northern California’s major rental markets continue to be tight although conditions have loosened significantly (primarily for units in the upper rent ranges) in the submarkets in the San Francisco Bay Area most affected by the downturn in the high-technology industry. In the Sacramento area, the booming economy and spillover demand from the adjacent Bay Area have maintained a tight rental market with a rental vacancy rate of less than 3 percent. Market conditions are expected to ease somewhat when a record level of apartments are completed later in 2001.

Strong employment and population growth in Southern California have kept that region’s rental markets balanced or tight. The Los Angeles County area continues to tighten with a reported apartment vacancy rate of 4.5 percent, while San Diego, Orange, and southern Santa Barbara Counties report tight market conditions and rental vacancy rates of 3 percent or less. The Los Angeles Times reports that the tight rental market in the Los Angeles and Orange County areas is hampering the Section 8 program because landlords can opt for other tenants who can pay higher rents. Although development of new apartments has increased in Southern California in every year since 1996, production remains unable to meet the demand for affordable rentals. According to the Bureau of Labor Statistics, rents in Southern California increased 5.4 percent in the 12-month period ending June 2000. The rental market in the Riverside-San Bernardino area is still balanced at approximately 7 percent. This represents a decline of approximately 1 percent in the vacancy rate during the second quarter due to the improved rent-up of older rental stock.

The Phoenix rental market remains balanced with an estimated overall vacancy rate of 7.5 percent. Rates are somewhat higher in some larger, high-amenity properties. Multifamily permit activity, which averaged a robust 10,500 units annually over the past 5 years, recorded a 7-percent drop in the first half of 2001 compared with the first half of 2000. Continued high volumes of apartment production and slower absorption have led to an increase in incentives. Vacancy rates are expected to gradually increase in the near term until the market adjusts.

According to CB Richard Ellis, the apartment vacancy rate in the Las Vegas area was 6.7 percent in June 2001. After strong multifamily production levels averaged nearly 10,000 units annually from 1995 through 1999, multifamily building permits dropped to only 5,000 units in 2000. As a result of strong absorption and lower production, the market remained balanced and the vacancy rate in newer high-end properties dropped to 5.5 percent. The balanced market conditions and favorable interest rates encouraged builders to obtain permits for 5,650 units in the first half of 2001, 77 percent above levels for the same period in 2000.

Spotlight on San Francisco Bay Area, California

Composed of nine counties, the San Francisco Bay Area is home to 6.8 million persons, one-fifth of the State’s population. Bay Area population increased by 12.6 percent from 6 million in 1990 to 6.8 million in 2000. Two-thirds of the growth occurred in the Oakland and San Jose metropolitan areas.

The economy of the Bay Area is doing very well despite significant layoffs in 2001 by high-technology manufacturing, networking, and telecommunications companies, particularly in the San Jose area. The Bay Area’s nonagricultural job base added 138,300 jobs in the 12 months ending in June 2001, a 4-percent increase. However, in comparing employment levels from the second quarter of 2001 with the same period in 2000, the increase stood at 2.2 percent. The unemployment rate increased from 2.5 percent to 3.3 percent as of the second quarter of 2001.

All industry segments in the Bay Area, except government, posted increases during the second quarter. Almost 66 percent of the new jobs were in the services sector. Of the 47,900 jobs in the services sector, slightly less than one-half were located in the San Francisco metropolitan area. Another 20 percent of the Bay Area’s job gains in the past 12 months came in the trade and manufacturing sectors. All of the region’s metropolitan areas posted employment gains from the second quarter of 2000 to the second quarter of 2001 that exceeded 2.5 percent, with the exception of the San Jose metropolitan area (Silicon Valley). There, employment increased by 1.2 percent.

The Bay Area’s rental markets continue to be tight. Rental production levels remain chronically insufficient relative to employment and household demand, forcing long commutes from as far as the Central Valley. According to RealFacts’ survey of rental developments of 100 or more units, the Bay Area’s rental vacancy rate as of the first quarter of 2001 was a tight 2.6 percent, up slightly compared with the first quarter of 2000.In the northern half of the Bay Area, in Marin, Napa, and Sonoma counties, vacancies are even lower than the area-wide rate. In the southern half of the area (in the high-cost San Francisco and San Jose areas) some weakness is evident. During the past 12 months rents have increased an average of 6 percent compared with 10 percent in the 12-month period ending in June 2000. Property managers in these areas indicate that some high-end properties have reduced rents and are offering nonrent concessions to attract tenants. Expectations are that rents in the upper end of the market will remain flat as long as the high-technology firms continue to reduce employment. Despite weakness in some upper-end properties, strong demand persists for Bay Area rentals, particularly at the middle and lower ranges of the market.

Developer interest in new multifamily development continued to increase as multifamily building permit activity for the first 6 months of 2001 rose 8 percent to 5,764 units. More than 70 percent of the new activity is in the San Jose and San Francisco metropolitan areas. RealFacts reports that the cities of San Jose, Oakland, and San Francisco currently have 15,000, 5,700, and 4,700 units, respectively, in the development pipeline.

Paralleling the slowdown in the Bay Area’s economy, single-family permit activity in the Bay Area in the first half of 2001 declined by 9 percent to 7,677 homes. Approximately 50 percent of the homebuilding is occurring in the Oakland metropolitan area, where there are more affordable building sites. Resale activity in the Bay Area also has weakened, declining 15 percent from the first half of 2000 to the first half of 2001, according to DataQuick. The metropolitan areas with the highest median sales prices experienced the greatest declines, as the San Francisco and San Jose metropolitan areas recorded drops of 21 and 19 percent, respectively, in sales. The median sales price for an existing home in the Bay Area was $454,600 in 2000, according to the NATIONAL ASSOCIATION OF REALTORS^® . In the first quarter of 2001, the median price stood at $483,300.