The Midwest economy grew moderately in 1997; nonagricultural employment increased by 1.4 percent, 325,000 jobs, during the 12 months ending in November. Business and health services, retail trade, and construction provided most of the new jobs. With unemployment rates at historic lows in many of the largest metropolitan areas, there are labor shortages for both skilled and unskilled workers.

Single-family building permit activity in the Midwest region was down 9 percent in 1997 compared with the very high volumes reported for the same period in 1996. All States reported declines in activity. Home construction remains strong, however, and building permits were issued for 171,386 homes in 1997, one of the best performances in the past 15 years. Shipments of manufactured housing to dealers in the region totaled 39,469 units in all of 1997, down 3.4 percent compared with 1996. Together, Michigan and Indiana accounted for more than one-half (20,749 homes) of the manufactured homes in the region.

Existing home sales in the region in 1997 were up 2 percent to 868,600 homes and a record for the 1990s. Fourth-quarter sales activity was up substantially compared with fourth-quarter 1996. Illinois' Association of REALTORS^® reported that existing home sales in the Chicago area were up 9 percent over the past 3 months of 1996, driven by significantly higher activity in the city.

Minneapolis-St. Paul's healthy economy sustained strong sales of existing homes in 1997. Through November, resales in the Twin Cities area totaled 40,164, surpassing 1996's record of 38,699 homes sold during the same period. Home construction in the Twin Cities area began to strengthen toward the end of 1997, following a weak first half due to poor weather. Building permits were issued for 13,642 new homes through December compared with 15,316 homes in 1996. Despite the drop, Minneapolis-St. Paul finished the year as the ninth most active single-family market in the Nation. St. Paul is making $20 million available to first-time homebuyers, which will assist about 300 low- and moderate-income families (those with incomes of $25,000 to $57,000) with low-interest loans.

Detroit continued to see high sales activity in 1997, following a very strong 1996. Slightly more than 39,300 new and existing homes were sold in the Detroit-Ann Arbor area through November compared with 39,900 home sales in the first 11 months of 1996. The Building Industry Association reported that all areas in southeast Michigan experienced strong buyer demand. Detroit's longstanding problem with abandoned homes will improve significantly in 1998 when the city tears down 7,000 vacant buildings using $60 million provided by HUD.

In the city of Chicago, contracts were signed for 2,853 new homes in 1997, compared with 1,833 homes in 1996, a 55-percent increase. The South Loop's Dearborn Village is selling quickly; 185 of 200 new townhouses priced between $135,000 and $190,000 have been sold in 4 months. Other southside neighborhoods in Douglas, Grand Boulevard, and Woodlawn are experiencing residential construction activity for the first time in decades. The Chicago Homebuilders Association reported that suburban builders are optimistic about new home sales in early 1998 due to high traffic in December.

In the Cleveland area, about 21,400 existing homes were sold in 1997, an 8-percent increase over 1996. The median sales price of $116,800 was up 4 percent over 1996. In the Columbus metropolitan area, contracts for 4,418 new homes were signed during the first 9 months of 1997, compared with 4,002 for the same period in 1996.

Midwest rental markets remain generally sound with apartment occupancy in the 92- to 96- percent range as of the fourth quarter of 1997. Multifamily housing production was strong in the first half of 1997, but activity slowed in the Fall to finish the year down slightly from 1996. Permits were issued for 60,881 multifamily units in 1997, compared with 62,105 units last year.

The Chicago area rental market is strong overall. Multifamily housing building permit activity in 1997 totaled 8,995 units, down 3.6 percent from 1996. In downtown Chicago, tightening market conditions and increasing rents have made rental housing production feasible for the first time since the 1980s. Construction began in December on the 809-unit One West Superior development and another highrise building with 470 units is scheduled to start construction in the Spring of 1998. However, there is concern about the capacity of the market to absorb the increased supply of new rental housing in suburban DuPage County. New townhouse apartment developments in the Aurora-Naperville area are renting up at a rate of 6 to 7 units a month, well below the 15 to 20 units a month that had been seen in the area a year earlier.

Cleveland's strengthening economy has helped the rental market. The Danter Company reported a third-quarter 1997 vacancy rate of 3.2 percent in the 72,300 market-rate apartments it surveyed. Multifamily permit activity in Cleveland in 1997 was down 12 percent from the 1996 level. Columbus' rental market continued to tighten in 1997. The third-quarter apartment vacancy rate was 3.6 percent, down from 3.8 percent in the third quarter of 1996. Approximately 4,500 apartment units were under construction in the metropolitan area at the end of 1997. However, new multifamily permits in 1997 were down 20 percent, to 3,682 units.

Economic expansion in western Michigan throughout 1997 prompted a 19-percent increase in multifamily units permitted in the Grand Rapids area in 1997 (1,918 units). Southeast Michigan's healthy economy has been supporting near-record multifamily housing production of almost 4,900 units annually for the past 2 years. The market has become more competitive but remains healthy. Several Detroit area property managers reported rental vacancy rates of 6 to 7 percent as of the fourth quarter, up from 4 to 5 percent for the same period in 1996.

Rental housing production in 1997 continued to lag behind demand in the Minneapolis-St. Paul area and 1998 activity is expected to remain low, according to local industry sources. The apartment vacancy rate was estimated to be close to 2 percent at the end of the year and has not exceeded 3 percent during the past 3 years.

Spotlight on Indianapolis, Indiana

Indianapolis' economy expanded at a much slower rate during 1997 than during 1996. The November 1997 employment level was only slightly more than November 1996, compared with a 2.6-percent increase from November 1995 to November 1996. The local economy added 3,600 jobs during the past 12 months, boosting total nonagricultural employment to 832,000 jobs as of November 1997. Health and educational services, retail trade, construction, and local government provided most of the new jobs. Indianapolis' unemployment rate of 2.6 percent is among the lowest in the region. The population of the 9-county metropolitan area, estimated at 1.5 million as of July 1996, has increased 8 percent since the 1990 census.

Downtown Indianapolis is in the middle of a 20-year, $3 billion revitalization program of new retail, commercial, and residential development. Reflecting the improved commercial market, Emmis Broadcasting Corporation began construction of its headquarters on Monument Circle, the first new office building in the downtown area since 1990. Anchored by Nordstrom, the $315 million Circle Centre Mall is 97-percent leased and has been attracting close to 1 million shoppers a month for the past 2 years. The Indiana Pacers' new $175 million basketball arena started construction in 1997, and the National Collegiate Athletic Association announced plans to relocate its headquarters from Kansas City to downtown Indianapolis. New apartment construction has been occurring along the Canal in downtown, which is being extended from the State Government Center to White River State Park. Almost 250 units were built from 1995 through 1997, and another 170-unit development is in the planning stages.

Homebuilding activity has been strong in the Indianapolis area in recent years. In 1990 and 1991, the number of single-family building permits averaged 6,600 annually. The average increased to 9,400 units from 1992 through 1995 and to 11,459 in 1996, the largest total in the past 18 years. Activity held strong in 1997, with permits issued for 10,660 single-family homes. An increasing share of production has been picked up by the outlying counties of Hamilton, Hendricks, and Johnson. New homes priced between $120,000 and $150,000 are selling well in Hamilton County. The Metropolitan Board of REALTORS^® reported that 17,528 existing homes were sold during the first 11 months of 1997 compared with 15,641 homes during the same period of 1996, an 11-percent gain. Reflecting the strong demand, sales prices in 1997 were up 4 to 6 percent over the same period in 1996. The strong sales market helped boost the homeownership rate in the metropolitan area to 72 percent in 1997, the highest annual rate in more than 10 years.

Multifamily housing permit activity in the Indianapolis area from 1990 through 1993 averaged 1,500 units annually. With the strengthening economy, activity increased to an average of 2,770 units from 1994 through 1996. This high level of activity continued in 1997 when 2,659 units were permitted. The fast-growing, outlying suburban areas have seen most of the new apartment development.

Indianapolis' rental market is becoming increasingly competitive in the face of significant construction activity. CB Commercial's 1997 survey of 110,000 apartment units in the metropolitan area showed an 8.3-percent vacancy rate as of the third quarter, up from 7.2 percent during the comparable period in 1996. In 1998 the vacancy rate is likely to approach 10 percent due to slower employment growth and the large number of new units (approximately 4,000) that are expected to enter the market. The small supply of new, high-rent apartments is being absorbed reasonably well. A 498-unit development in north Hamilton County with 2-bedroom rents close to $1,000 has been leasing steadily during the past 3 months.