In 2002 employment growth halted in the Pacific region. Nonagricultural employment declined by 44,000 jobs, or 0.2 percent, compared with a 1.4-percent gain in 2001. Arizona, California, and Hawaii recorded losses in employment of less than 1 percent. Nevada was one of the region’s brightest spots in 2002, gaining 15,400 new jobs, up 1.5 percent, as gaming and tourism gradually recovered in Las Vegas.

The population of the region increased by 1.8 million since the 2000 census, reaching 44 million by mid-2002. The rate of growth ranged from 2.8 percent in Hawaii to 6.4 percent in Arizona and 8.8 percent in Nevada. Arizona and Nevada were the Nation’s two fastest growing States. Approximately 1.2 million people moved to California since the census, a 3.7-percent gain.

In response to these population gains and the increased demand for housing, significant volumes of residential construction have been recorded throughout the region. Single-family building permit activity increased 11 percent in 2002 compared with 2001. New homebuilding activity in California, as measured by permits, increased 14 percent to approximately 121,000 units, the highest level in the past 12 years. Nearly 40 percent of the State’s new homes are being built in the greater Los Angeles area, and 15 percent are being built in the Sacramento area. These two fast-growing areas saw single-family building permit activity increase by 15 and 20 percent, respectively, in 2002. The sales market in Las Vegas continues to be very strong. The Las Vegas Housing Market Letter reports 22,500 new home sales for the year, very close to the record sales levels of 2001, and projected similar levels through 2005. On the strength of another record new home sales year in Phoenix, the State of Arizona recorded sales of approximately 55,000 single-family units in 2002, a 12-percent gain.

Existing homes in the region sold at a strong pace throughout 2002. California recorded 572,500 existing single-family detached home sales for the year, a 14-percent increase over 2001. According to a report from DataQuick, total sales of both new and existing homes in Southern California rose 12 percent in 2002 to nearly 340,000. The OFHEO price index indicates a 65-percent increase in sales prices in the State during the past 5 years, the third highest of any State. Nine California metropolitan areas are in OFHEO’s top 20 list of the largest home price increases in the last year. Phoenix and Las Vegas both had record levels of resales in 2002. The Honolulu sales market has continued its recovery with 9,300 resales in 2002, a 22-percent gain over 2001.

Multifamily building permit activity in the region for 2002 totaled 56,488 units, in line with the average of 57,000 units permitted annually since 1997. In California activity totaled 37,705 units. Multifamily activity in the San Francisco Bay Area for the year was down 15 percent, reflecting cutbacks in production by developers because of highly competitive rental market conditions in a number of submarkets. According to CB Richard Ellis, apartment vacancy rates in the Sacramento area in recent quarters have held steady at 4 percent. Conditions remain extremely tight near the University of California, Davis campus, but more balanced conditions and vacancy rates in the 5- to 6-percent range are reported in Placer County and Elk Grove due to new units entering the market.

Multifamily production is holding near last year’s levels in the Los Angeles area, where rental markets have remained generally balanced to tight. The movement of a significant number of renter households to homeownership because of the low interest rates has helped ease market conditions. Los Angeles, Ventura, and southern Santa Barbara Counties remained tight with overall vacancy rates of 4 percent or less. Rents in Los Angeles County remained flat during the fourth quarter. Orange County’s 5-percent vacancy rate reflects weakness in the upper rent ranges, and the Riverside-San Bernardino area remains balanced at 7 percent.

The apartment vacancy rate in the Las Vegas rental market has remained in the 8- to 9-percent range throughout 2002. In December CB Richard Ellis reported an overall apartment vacancy rate of approximately 9 percent, with rates ranging from 8.2 percent in upper-end properties up to 9.5 percent in older rentals. Multifamily production in Las Vegas has been fairly constant, averaging 6,800 units annually since 1999. Higher employment growth and stronger absorption in 2003 are expected to reduce vacancies somewhat by the end of the year. In Phoenix fourth-quarter rental absorption was weak. Winter visitors have not arrived in their historic numbers. The rental vacancy rate has increased to 9 percent, according to the Arizona Real Estate Center survey. Builders cut multifamily production by 13 percent during 2002. Multifamily building permit activity for 2002 totaled 7,311 units, well below the average of 10,300 units annually for the previous 5 years. Market conditions are expected to become more balanced in 2003 with the reduction in new supplies and the resumption of moderate employment growth.