The Midwest economy continued to grow at a moderate pace in the second quarter of 1999. The region added 216,300 jobs in the 12-month period ending in June, with the service and trade sectors representing three-quarters of the increase. The construction sector also performed well as healthy local economies continue to fuel strong gains in both residential and nonresidential construction. Only Illinois and Wisconsin recorded annual employment gains of greater than 1 percent. The unemployment rate in the region in June was 3.9 percent, unchanged from a year earlier. Detroit's building boom continues, with $4 billion under construction and planned for new sports stadiums, casinos, school construction, airport expansion, residential development, and utilities improvements.

Single-family home construction in the region, as measured by building permits, showed strength through the second quarter. During the first 6 months of 1999, permits were issued for 101,931 homes, an increase of 8 percent over the same period in 1998. All States recorded increases in single-family activity, with Minnesota and Wisconsin recording the largest increases of 14 and 12 percent, respectively. At the current pace, home construction in 1999 could make for the Midwest region's best year of the past two decades.

The region's healthy economy helped maintain the annual level of existing home sales at more than 952,600 homes for the second quarter of 1999, up 2.4 percent from a very strong second quarter of 1998. Increasing new job opportunities and consumer confidence have sustained the high sales volume during the second quarter. Detroit area lenders reported mortgage applications in April and May were running close to last year's strong pace for the same period. In many Midwest markets, inventories of available existing homes have declined significantly after 3 years of strong sales. Existing homes are selling near list prices, and multiple offers on homes are common.

The Minneapolis-St. Paul area sales market remains very strong. Existing home sales through June of approximately 22,000 are about equal to the volume for the same period last year, while the average sales price was up 10 percent to $152,500 over last year. Encouraged by strong sales of new homes in all price ranges, builders took out permits for 8,210 homes in the first 6 months compared with 6,876 new homes in the first half of 1998, a 19-percent increase.

The Chicago Association of REALTORS^® reported sales of existing homes in the city during the first 6 months of 1999 were 10 percent greater than during the same period in 1998, while the median price was up 9 percent to $158,200. Residential construction activity in the downtown area continues to benefit from growing demand for housing by new office workers, first-time buyers, and empty nesters. Appraisal Research Counselors' second-quarter 1999 survey of downtown development activity estimated that 4,380 new townhomes, condominiums, and apartments are likely to come online this year, well above the 2,400 units completed in 1998, which was a very strong year for residential activity. Inner-city neighborhoods also are experiencing significant new home construction for the first time in many years. In the Cabrini-Green area, construction is scheduled to begin this Fall on the first of 2,100 mixed-income units in the new North Town Village. The development will include luxury apartments and assisted housing, as well as single- family townhomes priced from $100,000 to $300,000. New homes are selling for similar prices in the Near South, Grand Boulevard, and Woodlawn neighborhoods.

Midwest rental housing markets remain generally sound, with apartment occupancy in the 93- to 97-percent range. Multifamily building permit activity in the region was up 10 percent to 27,676 units in the first 6 months of the year, due to substantial increases in activity in Illinois, Michigan, and Ohio.

In the Chicago area, which accounted for 72 percent of Illinois' activity, multifamily activity was up 24 percent to 4,252 units. Chicago's apartment market has significant strength in both occupancy and rents, according to Draper and Kramer's second-quarter 1999 Apartment Report. A survey of 118,400 units in the metropolitan area showed occupancy was 96 percent and rents were increasing 4 to 6 percent annually, compared with 94.5 percent and 2- to 4-percent rent increases as of the second quarter of 1998.

Apartment production in the Cincinnati-Hamilton area continues at a fast pace, with permits issued for 1,420 units in the first 6 months of 1999. From 1990 through June 1999, multifamily activity has consistently averaged approximately 2,500 units annually. CB Richard Ellis reports that new apartments are absorbed within a week or two of completion in northeast Hamilton and southwest Warren Counties, where economic growth is strongest. In Columbus the demand for new rentals remains strong. Multifamily building permits were issued for 2,349 units in the first 6 months of the year, a 49-percent increase. New apartments are being absorbed quickly with little change in overall occupancy rates. An April 1999 survey of 82,600 apartment units by Corson & Associates showed occupancy around 93 percent.

The Detroit area's apartment market is successfully absorbing the significant multifamily construction of the past 2 years. An owner of 9,300 new and existing rental units reported vacancy rates had fallen from 8 percent in June 1998 to 6 percent as of June 1999. Rents had also increased at a faster rate than during the previous 12-month period. Demand for rental housing in the Minneapolis-St. Paul area continues strong. The Griffin Companies reported that 3,360 new apartment units for general occupancy are planned to enter the Twin Cities market over the next 2 years, more than double the 1,430 units completed since 1997. In Wisconsin, Madison's strong economy has supported high levels of apartment construction of 1,500 to 1,600 units annually for the past several years, with second-quarter occupancy holding steady at 95 to 96 percent, according to the Madison Area Apartment Association.

Spotlight on Cleveland, Ohio

The Cleveland metropolitan area's nonagricultural employment totaled 1,172,800 persons as of June. Durable goods manufacturing is still an important part of the economy, but local efforts to diversify have added jobs in computer processing and software development and research and consulting. The unemployment rate was 4.6 percent in June. Forecasts by the Purchasing Management Association of Cleveland suggest that the local economy's moderate rate of growth will continue through the second half of 1999.

Homebuilding activity has been strong in the Cleveland area in recent years. The average number of single-family building permits averaged 5,700 units annually from 1992 through 1997 and increased to 6,290 in 1998. Permit activity in the first 6 months of 1999 totaled 3,438 units, up 8 percent over the first half of 1998. New homes in the city of Cleveland are priced between $100,000 and $175,000, and homes in the suburbs are selling for $175,000 to $250,000. The suburban areas of Brunswick in Medina County and Strongville in Cuyahoga County have been very active. In the city of Cleveland, 1,000 new homes have been built in the past 2 years.

In 1998 existing home sales totaled 23,700, a 10-percent increase over 1997, while the average sales price increased from $116,500 to $121,000, or 4 percent. The Northern Ohio Regional Multiple Listing Service reported existing sales in the first half of 1999 held steady at 10,600 homes compared with 10,800 in the first 6 months of 1998. FHA mortgage insurance activity in the metropolitan area was very strong in 1998, with 8,186 home loans for a total mortgage volume of $703 million compared with 5,217 loans and $429 million for 1997. The brisk sales market helped lift the homeownership rate to 73 percent in 1998.

Construction of rental housing in the Cleveland area has been steady. From 1991 through 1998, multifamily building permit activity averaged about 1,200 units annually. Activity in the first 5 months of 1999 was up almost 8 percent to 521 units. Developer interest in Cleveland's rental market remains in the city's downtown. In the very active Playhouse Square and Warehouse District areas, vacancy rates below 6 percent as of the first quarter were common. HUD has helped finance 6 of 18 large rental developments in the downtown area with FHA mortgage insurance. The city of Cleveland reported that 500 new market-rate apartments are expected to enter the downtown market over the next 2 years. Homebuyers are also showing interest in Downtown Cleveland. The first conversion of rental apartments to condominiums is under way; Grand Arcade's 95 units are selling quickly at prices between $70,000 and $300,000.