After increasing only 1 percent in 2000, employment in the Midwest region stalled in 2001. Employment in the region averaged 25 million in 2001, unchanged from 2000. Indiana, Minnesota, Ohio, and Wisconsin reported employment gains for the year in the 1- to 3-percent range, offsetting declines in Illinois and Michigan. The unemployment rate in the region averaged 4.5 percent for 2001, up from 3.4 percent for 2000.

Existing home sales in the Midwest marked another strong year in 2001. Low interest rates helped maintain the annual level of existing sales at more than 938,000 homes at year's end, up 4 percent. Preliminary information for the fourth quarter of 2001 shows sales activity continued to exhibit strength throughout the region. The healthy sales markets in the Cincinnati, Cleveland, and Columbus areas supported the 5-percent increase in sales activity in the State to 196,500 homes. In the Minneapolis-St. Paul area, sales of existing homes for the year also reached a record 49,600 homes. This lifted homeownership to a record 76 percent as of the fourth quarter of 2001. Twin City Area REALTORS^® expect that 2002 will see similar sales activity. The Chicago Association of REALTORS^® reported that existing home sales in 2001, at 114,500, set a record, while the median sales price in the metropolitan area rose 14 percent to $175,000. The Milwaukee area experienced its best sales market for existing homes in the past 3 years, with 17,300 homes sold through December 2001, up 6 percent from the same period in 2000. In the Detroit-Ann Arbor area, existing home sales totaled 37,800 in 2001, close to 2000's high sales volume of 38,100 homes.

The region also had a very good year for residential construction and new home sales. Homebuilders expect construction activity in 2002 to equal 2001. Building permits were issued for 198,500 single-family homes in 2001, a 2.3-percent increase compared with 2000. In Minnesota, The Builders Association of the Twin Cities reported that 2001 was another banner year for new home construction. After a slow start, activity picked up in midsummer to finish the year slightly ahead of 2000, which was a strong year for new home construction.

Chicago area builders reported a record 27,000 new homes sold in 2001 on the strength of suburban sales activity, where new home sales rose 13 percent over 2000. Indianapolis area builders had their best year for home construction in more than a decade, with 15,100 new homes starting construction during 2001. Homes in Hamilton and Marion Counties priced from $100,000 to $175,000 accounted for two-thirds of the metropolitan areas' new home sales.

The Wisconsin Builders Association reported a good year throughout the State. Encouraged by healthy sales of new homes in all price ranges, builders started construction of 23,700 single-family homes through December 2001, up 3 percent from 2000. In Ohio, the Columbus area's robust economy encouraged builders to increase single-family permit activity by 15 percent in 2001, to 10,400 units. The Building Industry Association of Central Ohio reported that new homes sold well in northwest Franklin County, where job growth has been strong. However, the Building Industry Association of Southeast Michigan reported that in 2001, Detroit area builders pulled back from the high levels of home construction activity of the past 3 years because of the local economy's slowdown. Builders took out permits for 18,900 single-family homes through December, down 9 percent from 2000. Multifamily building permit activity in the region held steady at 60,700 units in 2001 compared with 61,100 units in 2000. Illinois, Minnesota, and Wisconsin recorded increases in activity. Market conditions have become more competitive throughout the Midwest region.

An owner of 48,000 new and existing apartment units in the region reported fourth-quarter 2001 occupancy of approximately 90 percent, compared with 93 percent a year earlier. In Columbus, multifamily activity in 2001 totaled 4,700 units, down 14 percent, as the market corrected itself following two high-volume years that averaged almost 6,000 units annually. Cincinnati's apartment market loosened during the year. CB Richard Ellis reported that fourth-quarter occupancy was 91 percent, down from 95 percent in the fourth quarter of 2000.

Chicago's downtown apartment market also showed signs of softening in 2001 due to job cutbacks in the area, a near-record 5,000 new condominium units entering the market, and tenants taking advantage of low interest rates to purchase homes. The softer market conditions have prompted several developers to defer plans for new luxury apartments and condominiums until 2003, when market conditions are expected to improve. Apartment occupancy in the downtown market was 89 percent as of the fourth quarter of 2001, according to Appraisal Research Counselors Ltd. A recent survey from Marcus & Millichap indicates that Lincoln Park and other north side neighborhoods are tighter.

Detroit-Ann Arbor's rental market is holding up well despite the economy's slowdown. According to Hendricks and Partners 2001 Apartment Update, the overall vacancy rate was 3.6 percent, up slightly from 2000. Multifamily permit activity in the metropolitan area totaled 4,300 units through November, a 7-percent increase. Detroit's Greater Downtown Partnership reported that demand for housing continued to grow during 2001 in all three of downtown's neighborhoods: Lower Woodward Corridor, Midtown, and New Center. Grand Rapids' revitalizing downtown also is seeing good absorption of new rental housing due to its growing popularity, particularly with young professionals. Multifamily construction activity in the metropolitan area in 2001 totaled 1,109 units.

In Indianapolis the rental market remained very competitive throughout 2001. The apartment vacancy rate stayed in the 9- to 10-percent range throughout 2001. Rents were flat, and concessions were widespread. Multifamily building permit activity in 2001 declined by 7 percent to 2,400 units.

Multifamily permit activity in Minnesota during the past 2 years averaged 7,000 units annually, which helped ease the shortage of rental housing in some of the State's markets. Minneapolis-St. Paul apartment vacancies were 4 percent in December 2001 compared with 2 percent or less in December 2000.

Spotlight on Rochester, Minnesota

Rochester is a fast-growing single-county metropolitan area in southeastern Minnesota, home to the world-famous Mayo Clinic, IBM's research and development facility, and many smaller high technology firms. The 2000 census reported that the population in the metropolitan area grew by 16 percent to 124,200 persons. Approximately 70 percent of the area's population lives in the city of Rochester.

The Rochester area's economy remains quite strong. Employment in the area grew by a very healthy rate of 2.3 percent in 2001, compared with 4 percent annually from 1995 through 2000. As expected, health services comprised a major share of the employment gain for the year. Steady growth at the Mayo Clinic, which is in the middle of a 5-year expansion program, has contributed to the area's population growth and strong local economy. The unemployment rate in the metropolitan area remains low, averaging 2.4 percent in 2001, which is down slightly from 2.7 percent in 2000.

The strong economy continued to support a relatively high volume demand for new housing. Single-family building permit activity in 2001 totaled 1,119 homes, compared with 890 in 2000. In Rochester, building permits were issued for 750 single-family homes and 338 multifamily units, including two condominium developments of 80 units each.

Rochester's existing sales market was strong in 2001. Activity increased 13 percent for the year to 2,160 homes, compared with 1,900 homes in 2000. The average sales price for 2001 was $156,254, up 3.6 percent from the previous year. In early 2001, the area's Federal Housing Administration (FHA) mortgage limit was raised to $175,500, resulting in a near doubling of FHA home insurance activity to more than 750 homes.

Rochester's rental market remains tight but began to ease in fall 2001. Recent surveys indicate rental vacancies in the 3- to 4-percent range compared to 1998, when vacancies were virtually nonexistent. Recently completed apartment developments report very strong leasing activity, which has encouraged the owners of one development to plan another phase of 158 units.

Supplies of affordable housing sales or rentals have been scarce in the Rochester metropolitan area. The First Homes program was established in 1999 by private foundations and the Minnesota Housing Finance Agency to address the area's growing affordable housing need. Using $12.75 million in contributions from foundations and other sources, First Homes has leveraged $105 million for construction of 875 affordable homes and apartments through 2005. By the end of 2001, 100 homes had been completed and sold, and 128 rental units, completed.