Strong economic growth in the Pacific region during the second quarter of 1998 resulted in an annual gain of 562,300 new jobs in the 12 months ending in June 1998, a 3.4-percent gain. California added 436,000 jobs, a 3.3-percent increase, during the period, about two-thirds of which was in Southern California. Phoenix contributed more than 90 percent of Arizona's 95,200 new jobs, a 4.8-percent gain. Nevada added 37,300 new jobs in the 12-month period, a 4.2-percent gain. In Las Vegas, employment has increased 4.7 percent (about 30,000 new jobs) during the 12 months ending in June 1998. While still very strong, this is well below the 38,000 new jobs added in the area in the prior 12-month period, when a number of new casino/resorts opened. However, Las Vegas' employment growth is expected to jump again in late 1998 and 1999, when a number of major projects will come on line.

Enjoying robust sales in most areas, homebuilders in the Pacific region took out permits for 84,546 single-family units in the first half of 1998, up 14 percent over last year. Activity in California was up 13 percent to 44,919 homes. Market areas of the State with high rates of job growth, such as San Diego and Riverside-San Bernardino, reported even larger increases, with single-family permits up 25 and 24 percent, respectively.

In Phoenix, single-family construction levels are exceeding 1997's record pace, with permits through May up 20 percent. The area had the second highest volume in the Nation behind Atlanta. A recent statewide growth management initiative failed to gather sufficient signatures for the November ballot, but sponsors intend to try again in 1999. Nevada single-family permit activity for the first 6 months was 12 percent greater than the same period last year. New home sales in Las Vegas in 1998 have remained at 1997's high rate. Single-family permits in the area are up 12 percent. However, part of the increase is due to banking of permits prior to a change in building codes.

The California sales housing market continued to gain strength. Resales were up more than 19 percent in May 1998 compared with May 1997, to an annual rate of 646,500. Sales in May totaled more than $10 billion, a 26-percent increase from May 1997 and the highest dollar volume of any month in the past 9 years. The median sales price for existing homes in the State as of May reached $204,440, a 10.5-percent increase over the year-earlier figure. Sales of condominiums in May were up 31 percent over May 1997. The substantial increase is due in part to the affordability of condominiums and the increasingly higher prices for detached homes.

Sales of existing homes in Las Vegas during the first 5 months of the year were 15 percent greater than during the same period in 1997, while the median sales price was up about 5 percent over last year. Resales in Phoenix for the first 6 months are running 18 percent ahead of the pace for 1997, which saw record sales.

Through June, multifamily housing permit activity in the Pacific region increased 23 percent to 26,677 units. California builders took out permits for 13,662 units, a 30-percent gain. Nearly half the State's multifamily construction is occurring in the San Francisco Bay Area.

Rental vacancy rates throughout Southern California remained unchanged through the second quarter of 1998. The tightest markets in Southern California continued to be in Santa Barbara and Ventura Counties, where vacancy rates are lower than 5 percent, and in Orange and San Diego Counties, where rates are in the 5-percent range. The overall rental housing vacancy rate in the Los Angeles area remains around 8 percent, but rent concessions are not as widespread as they were previously. Parts of the San Fernando Valley, however, still have rental vacancy rates exceeding 10 percent, and the vacancy rate in the Riverside-San Bernardino area is holding steady at approximately 9 percent.

Nevada multifamily permit activity in the first half of 1998 totaled 7,141 units, a 32-percent increase over the comparable period in 1997. The substantial increase is due in large part to the banking of permits because of code changes. Permits were up significantly in only two jurisdictions, unincorporated Clark County and North Las Vegas, which had instituted changes in codes and processing fees. The rental vacancy rate in Las Vegas is currently at 7 percent, up about 1 percentage point in the last year due to the influx of new inventory. Rents are up a modest 3 percent and concessions are common in the most competitive submarkets.

Multifamily activity for the first half of 1998 was up 12 percent in Arizona and was up 21 percent in Phoenix. The rental market in Phoenix remains balanced, with strong absorption and vacancies in the 5-percent range. Rents in much of the market have increased about 6 percent in the last 12 months, but increases have been more modest in the high end of the market, where increased competition and concessions are more prevalent. With rising costs of prime zoned apartment land, new apartments are becoming marginally less attractive to build compared with other uses.

Spotlight on San Francisco Bay Area, California

The San Francisco Bay Area's nine counties have a population of more than 6.5 million. As of May 1998, nonagricultural employment averaged 3,257,800, an increase of 2.6 percent (81,500 jobs) over the comparable period in 1997. In the same period, the unemployment rate fell from 3.7 percent to 3.2 percent. The Bay Area's distribution of employment by industry closely mirrors that of the State. The service industry is the most significant sector, employing 33 percent of area workers. Services added 42,100 jobs in the 12 months ending in May (up 4.1 percent), about half of all new job creation. The second largest sector is trade, which accounts for 21 percent of jobs. Trade jobs expanded at a more modest level of 1.4 percent in the past 12 months. Silicon Valley pushed manufacturing into the third ranking industrial sector (15 percent of all workers). Bay Area manufacturing expanded at 1.7 percent (8,500 jobs) during the 12-month period as a result of lower export levels and some electronics industry layoffs.

The boom in construction activity is most evident in parts of Santa Clara and San Francisco Counties, particularly in the South of Market Area (SOMA) of San Francisco. A decade-long slump in office construction and the economic recovery have contributed to a decline in the vacancy rate to 4 percent. Two high-rise office towers are under construction, and a third has just been approved for SOMA. The city's hotel occupancy rate has risen to a historic high of 80 percent. Two hotels with more than 30 stories are also under construction in SOMA. One will be a 37-story, mixed-use tower with a 285-room Four Seasons Hotel and 140 condominiums; the other will be a 285-room Starwood Hotel. At this time construction is scheduled to begin on three other hotels in the area, with completion dates some time in 2000. Two residential towers with more than 40 stories have also been recently approved for SOMA by the city's planning commission. One, Natoma Tower, will be 48 stories and have 509 condominiums and apartments, of which 10 percent are to be "affordable." The second building of 41 stories is planned for 498 apartments and an unknown amount of ground-floor retail space.

The Bay Area's housing market remains strong in both the rental and sales segments. The rental housing vacancy rate in the first quarter of 1998 in selected larger, newer, primarily suburban projects surveyed by William Lyon Market Trends was reported at 3.2 percent. All counties but Solano County (6 percent) posted vacancy rates near or below 3 percent. Rents per square foot have increased 8.9 percent on average from first-quarter 1997 to the same period in 1998. Multifamily permit activity for the Bay Area during the first 6 months of 1998 totaled 5,755 units, a 58-percent increase from 1997 volume for the comparable period.

Single-family permit activity of 8,035 homes through June was off by only 2 percent despite the slowdown in production earlier in the year caused by poor weather. The strong economy and tight sales market have heated up demand for resales. Sellers commonly receive multiple offers on their listings. According to the California Association of REALTORS^®, sales activity increased 14.2 percent in the San Francisco Bay Area between May 1997 and May 1998. Sales volume hit all-time highs in seven of nine Bay Area counties. Bay Area sales for the first 5 months of 1998 were up 12.5 percent over the volume for the comparable period in 1997. During this same period, the median sales price also climbed 12.5 percent to $315,000. In much of the Bay Area and in Santa Clara and Marin Counties, home values have recovered close to their 1990 levels.