The Midwest region's economy continued its strong performance during the second quarter of 1997. Unemployment rates as of May 1997 were below the national average in every State. The Chicago area's economy added 55,800 jobs during the 12 months ending in May. Manufacturers in the Cleveland area have been reporting strong gains in employment since the beginning of 1997. Construction employment gains in the Detroit area have been particularly strong due to increased residential homebuilding and new office development. The new $172 million sports stadium and $50 million expansion of the convention center in Indianapolis will add 3,900 construction jobs in the downtown area over the next 2 years.

The region's healthy economy helped maintain the annual level of existing home sales at more than 830,000 units for the first quarter of 1997. Home price appreciation in the region for the 12 months ending March 1997 was the highest in the Nation -- 6.6 percent -- according to HUD's Office of Federal Housing Enterprise Oversight.

Single-family building permit activity in the Midwest region decreased by 10.7 percent during the first half of 1997 compared with the high levels for the same period in 1996. Home construction remains strong, however, and building permits were issued for 84,150 single-family homes -- showing one of the best performances in the past 10 years.

The Minneapolis-St. Paul area sales market remains very strong. Sales of existing homes in the first half of 1997 (18,545 homes) were essentially unchanged from the comparable 1996 period. Builders reduced production in the first half of 1997 in response to slower sales in the first quarter of 1997, and permits were issued for 13 percent fewer units (6,561) from January through June 1997 than in the comparable 1996 period. Builders are optimistic about the remainder of 1997, however. In Minneapolis' Phillips neighborhood, one of the city's most distressed areas, the National Equity Fund is providing $5.1 million to help in the construction of 87 affordable homes.

Chicago-area builders also cut back production in response to a 12-percent drop in new home sales in the first 5 months of 1997. Single-family building permits for the first 6 months of 1997 (10,725) were also down 12 percent compared with the same period in 1996. However, strong demand for sales housing in Chicago has spurred the conversion of more than 50 office and warehouse buildings to 4,430 high-priced condominiums and townhouses. The city of Chicago reported that nearly all of the $42 million from its affordable housing program made available to first-time buyers in February 1997 for assistance with downpayments and closing costs was committed by the end of June.

New home sales in the Columbus and Cincinnati areas were up 8 and 12 percent, respectively, in the first quarter of 1997 over the comparable period in 1996. However, the numbers of single-family permits issued in these areas for the first half of 1997 (3,298 and 3,434, respectively) were down 15 and 10 percent, respectively, from the comparable period in 1996.

Fannie Mae recently opened a partnership office in Columbus. Fannie Mae, together with State and local government agencies, Ohio State University, and local mortgage lenders has formed HouseColumbus, which uses $1.5 billion for a variety of programs to help low- and middle-income families buy homes in Columbus. The programs include a 3-percent downpayment plan on 30-year, fixed-rate mortgages, a work equity plan that provides credit toward closing costs or downpayments, and an employer-assisted housing program for Ohio State University workers.

The Cleveland Homebuilders Association reported a record turnout of prospective buyers at the fourth annual Condoquest held throughout the metropolitan area June 7 to 22, 1997. Condominiums and townhomes priced between $150,000 and $180,000 were especially popular with single professionals.

Indianapolis' 11,470 single-family permits issued in 1996 were the highest number in the past 18 years. Single-family permit activity in the first half of 1997 (5,359 units) was down 6 percent compared with the first half of 1996, but home sales have remained brisk. Pulte Home Corporation reported that new home sales ($200,000 to $220,000) were up 17 percent from 1996.

Midwest rental markets remain strong, with apartment occupancy in the 93- to 96-percent range as of the second quarter of 1997. Building permits were issued for 27,244 multifamily units during the first 6 months of 1997. This number was 19 percent higher than the 22,923 units permitted in 1996, and the highest number for the first 6 months since 1990. Every State reported significant increases except Wisconsin, where activity was up less than 2 percent above 1996's strong performance. In the Cincinnati area, multifamily activity from January through June 1997 was up 32 percent to 1,860 units, compared with the first half of 1996.

Cleveland's rental market continues its strong performance. The Danter Company reported a first quarter 1997 vacancy rate of 3.7 percent in the 72,000 market-rate apartments it surveyed. The apartment occupancy rate in downtown Cleveland's popular Warehouse District was 98 percent. In the Madison, Wisconsin, area, strong rental demand meant a 100-percent increase in the number of multifamily units permitted in the first 6 months of 1997. Minneapolis-St. Paul's apartment vacancy rate fell to 2.5 percent as of March 1997. Construction recently started on the 317-unit Calhoun Beach Club apartments in Minneapolis' Uptown neighborhood. The development is the first market-rate rental project of any size in the Twin-Cities area in the past 5 years.

Spotlight on Detroit, Michigan

The Detroit area's economy has improved considerably over the past 2 years. Employment has increased by approximately 2 percent annually. The city of Detroit also shows signs of recovery. In November 1996 Michigan voters authorized construction of three downtown casinos, and Wayne County voters approved a tax increase on hotel rooms and rental cars to help finance two adjacent football and baseball stadiums for the Lions and the Tigers.

Detroit has been aggressive in using its Empowerment Zone (EZ) designation and associated tax benefits to attract businesses, revitalize its manufacturing base, and generate jobs. The EZ has seen private investments exceed $1 billion, including Chrysler Corporation's $750 million engine-assembly plant, General Motors' $250 million expansion of its Hamtramck facility, and another $5 million by various automobile-parts suppliers. HUD allocated $250 million to revitalize Detroit's public housing, including the demolition of 2,677 units in the city's three largest projects: Jeffries, Parkside, and Herman Gardens. Approximately 2,400 public housing units will be rehabilitated over the next 5 years.

Detroit's healthy economy has boosted the sales market. From 1990 through 1992, an average of 10,500 single-family building permits were authorized annually in the metropolitan area. However, with the recovery in 1993, activity increased to an average of 13,500 units permitted annually from 1993 to 1995. In 1996 permits were issued for 15,798 single-family homes, which was the highest volume in the past 18 years. Activity remained strong through the first 6 months of 1997, with permits issued for 7,437 units -- down 6 percent from the level in the first half of 1996. Hot markets for new, single-family homes in the metropolitan area include Macomb Township in Macomb County, Canton Township in western Wayne County, and West Bloomfield in Oakland County.

In addition to new construction activity, the strong housing market also is reflected in overall home prices. Between the first quarter of 1996 and the first quarter of 1997, the median sales price for existing homes increased from $105,800 to $113,900, or 7.7 percent. Sales of new and existing homes in the metropolitan area totalled 39,050 in 1996.

Home construction activity has increased in the city of Detroit. Pulte is planning a 57-unit luxury townhome development called Shorepointe Village near downtown on the riverfront. These townhomes will be priced between $330,000 and $500,000. Following strong market response to new homes at Victoria Park and other moderate-priced new subdivisions, Crosswinds Communities plans to build 500 townhomes priced around $150,000 in the Brush Park neighborhood. This would be the largest privately financed sales housing development in Detroit in more than 30 years.

Rental housing production in the Detroit area has increased significantly. From 1991 through 1993, multifamily permit activity averaged 2,830 units annually as the area absorbed the excess supply built in the late 1980s. From 1994 through 1996, activity increased to 3,700 units annually. Multifamily housing production remained strong in the first 6 months of 1997; permits were issued for 1,320 units, which was close to the level of activity for the same period in 1996.

Detroit's rental market remains firm, with apartment occupancy in the metropolitan area around 95 percent. In the previously tight suburban sub-markets of Novi and Farmington Hills (in west suburban Oakland County) and Canton Township (in Wayne County), the significant multifamily activity over the past 3 years has made conditions more balanced. Demand in the city of Detroit has also increased over the past 3 years, particularly in the downtown area where apartment occupancy is between 94 and 96 percent and rents are increasing annually by 4 percent.