Employment in the Pacific region increased by more than 500,000 jobs -- a 3.1-percent growth rate -- during the 12 months ending in May 1997. Job gains in California totalled more than 360,000. Employment gains in California are forecasted to total 1.2 million jobs over the next 3 years. Strong growth has continued in both Arizona and Nevada; employment increased 87,000 (4.6 percent) and 54,500 (6.5 percent), respectively, for the 12 months ending in May 1997. Approximately $6 billion in casino developments are planned in Nevada over the next 3 years. Labor markets are tight in Las Vegas and Phoenix, which reported May 1997 unemployment rates of 4.1 and 3.2 percent, respectively.

Single-family permit activity in the Pacific region (74,349 units), and California in particular, buck-ed the national trend for the first 6 months of 1997 with a 2.3-percent increase compared with the same period in 1996. California's improving economy resulted in a 9.2-percent increase in single-family permits to 39,883. In the San Francisco Bay Area, single-family permits were up 27 percent to 8,177. The rebound was also reported in Southern California, where activity increased by 13 percent in Los Angeles County (3,032 units); 8 percent in the Riverside-San Bernardino area (6,561); and 22 percent in Orange County (3,988 units). Farther south, San Diego also reported a dramatic 31-percent increase -- for a total of 3,663 units -- in the first 6 months of 1997.

In Arizona and Nevada, the markets remain strong. Single-family permit activity was down by only 3 and 7 percent, respectively, for the first 6 months of 1997 compared with the same period in 1996. Phoenix remains the region's largest single-family market, with more than 15,700 units permitted in the first 6 months of 1997. In Las Vegas about 10,500 units were permitted in the same 6-month period, and construction and sales for all of 1997 are expected to equal 1996's strong performance.

According to the California Association of REALTORS^®, existing home sales as of May 1997 had reached an annual rate of 545,000 homes, an increase of nearly 3 percent compared with the same period in 1996. As of May the median sales price for existing homes ($185,360) increased by 3.5 percent over May 1996, the largest annual increase since 1991.

Existing home sales in Phoenix in the first half of 1997 nearly equalled the high levels for the first half of 1996. The median sales price increased by 9 percent compared with prices in 1996. In Las Vegas resales through May were down -- about 3 percent -- and the median sales price was almost unchanged from the same period in 1996.

Multifamily building permit activity in Arizona was down 29 percent (to 5,037 units) in the first 6 months of 1997 compared with the same period in 1996. In Nevada activity for the first half of 1997 fell 11 percent (to 4,608 units) compared with 1996's level. The Las Vegas and Phoenix rental markets remained balanced, but vacancy rates have begun to drift upward. A June 1997 survey of Las Vegas by Coldwell Banker estimated rental vacancies were in the 5- to 6-percent range. Sources report that the Phoenix vacancy rate has increased to about 6 percent. In both markets the continued expansion in the supply of new luxury apartments has increased competition and the use of concessions.

Most California rental markets continued to tighten, supporting a 19-percent increase in multifamily building permit activity (to 10,497 units) for the first 6 months of 1997. The markets in the San Francisco Bay Area remained tight; vacancy rates in the San Francisco and Santa Clara areas were about 3 percent, and vacancy rates in the East Bay area were between 4 and 5 percent. Rents continued to escalate in the Bay Area and increased by more than 10 percent by some estimates for well-situated, newer, upscale properties.

The improved economy in Southern California has begun to carry over to the rental market. In Orange County permits were issued for almost 2,400 multifamily units in the first 6 months of 1997 -- a 26-percent increase. San Diego also reported a substantial increase in permit activity. Apartment vacancy rates in Orange and San Diego counties are less than 5 percent in most complexes. Los Angeles County still has some very soft submarkets, but overall conditions have improved and the vacancy rate has dropped to 8 percent. Conditions in Riverside and San Bernardino counties have improved, but they still have double-digit vacancy rates in much of the market. Although newer properties located in more upscale areas are running at 5- to 8-percent vacancy, older properties and those near military bases that have closed continue to struggle.

Spotlight on Oakland, California

The Oakland metropolitan area (Alameda and Contra Costa counties) has experienced moderate population growth of about 1.5 percent annually since 1990. The area had a population of about 2,255,000 persons as of 1996. The city of Oakland is experiencing a growth in population that resumed in the 1980s after two decades of decline.

As of May 1997, nonagricultural employment totalled 933,300 jobs, an increase of 20,100 jobs (2.2 percent) from 1996. The construction and trucking/warehousing industries posted the largest percentage gains, 7 and 13 percent, respectively. The services sector, which is the largest job provider, listed the biggest net increase of 9,700 positions (3.7 percent). The back-office operations of major San Francisco Bay Area employers, such as Chevron USA and Bank of America, are located in Contra Costa County.

The University of California at Berkeley contributes to the area's economic strength with its research in biotechnology and engineering and its consulting activities. The unemployment rate as of May 1997 was 4.3 percent, down from 4.9 in May 1996.

The Oakland and the Contra Costa County associations of REALTORS^® report that both Alameda and Contra Costa counties had increases in existing home sales of 12 percent and 14 percent, respectively, during the first half of 1997 compared with the first half of 1996.

The median sales price in Alameda County as of the second quarter was up about 8.6 percent to $221,000. In Contra Costa County the median sales price was $224,000 -- an increase of 5 percent. Although home prices in most of the area have yet to recover to 1990 levels, some communities along the Interstate 680 corridor are experiencing double-digit increases due to spillover of demand from adjacent Silicon Valley. Single-family construction in the Oakland area averaged 4,750 homes annually between 1990 and 1993. With the improvement in the economy, single-family building permits increased to an average 5,700 homes annually from 1994 through 1996. In the first half of 1997, single-family permits totalled 3,613, a 25-percent increase compared with the first half of 1996.

Although home prices are not as high in the East Bay area as in the neighboring San Francisco and San Jose areas, they are still out of reach for many families. The city of Oakland, seeking to increase its rate of homeownership, formed OPTIONS -- a homeownership partnership with the local housing industry and several nonprofit groups. The services provided include housing counseling and downpayment assistance programs.

In addition the city has worked with local non-profits to develop new, affordable homeownership opportunities. More than 200 homes are now under construction or in the final planning stages. Two nonprofit housing groups -- the Bridge Housing Corporation and the East Bay Asian Local Development Corporation (EBALDC) -- have begun the rehabilitation of the large Acorn Apartments complex in Oakland using HUD and city of Oakland funds. The development will be constructed in several phases over the next 3 years. The plan provides for 205 mixed-income rental units, 100 mutual housing units, and 72 affordable, single-family homes. Mutual housing is an intermediate step between rental and condominium ownership where residents earn credits toward downpayments. Plans are under way to rehabilitate the adjacent shopping center, in part with Community Development Block Grant (CDBG) funds.

The Oakland area rental market is balanced. Multifamily building permit activity has been relatively stable, averaging approximately 1,025 units annually since 1993. Activity in the first 6 months of 1997 increased 70 percent to 889 units. The rental vacancy rate has remained under 6 percent for the past several years. According to Lyon Market Trends, larger apartment complexes in Alameda County experienced a rental vacancy rate of 3.6 percent, while Contra Costa County's apartment rental vacancy rate was about 5 percent. Average rents for apartments have risen steadily in both counties over recent years. A survey by Lyon Market Trends reported that in Alameda County, the average rent for a two-bedroom, two-bathroom unit in the complexes it surveys increased by about 9 percent to $1,065 during the 12-month period ending in March 1997. During the same period, in Contra Costa County the average rent increased by 8 percent to $965. Influenced by the very tight rental market in San Jose's Silicon Valley to the south, southern Alameda County has recently begun to experience tighter conditions, lower vacancy rates, and greater rent increases.