The region added more than 466,000 nonagricultural jobs during the 12-month period ending November 1997 -- a 2.8-percent gain over the same period 12 months earlier. The rate of growth in the region slowed toward the end of 1997 compared with the first half of the year and is expected to be more moderate in 1998. California saw an increase of 338,200 new jobs (a 2.6-percent growth), with nearly half of the gain coming in Southern California. Employment in Arizona and Nevada grew by 85,200 jobs (4.3 percent) and 42,000 jobs (4.8 percent), respectively, over the 12-month period ending in November 1997.

The improved California economy supported a 1.3-percent growth in population in 1997. The State led the Nation in immigration, and new job opportunities reversed the net out-migration experienced in the early 1990s. Southern California has been the major beneficiary of the growth -- the Los Angeles Consolidated Metropolitan Statistical Area led the Nation with a gain of 964,000 persons from 1990 to 1996. During the same period, the Phoenix and San Francisco metropolitan areas ranked fifth and ninth, respectively, in total population growth.

Single-family building permit activity for the region totaled 153,562 units in 1997 -- an 8.4-percent gain over the previous year. California's new home market continued to strengthen in 1997, with a 13.8-percent increase in single-family permits to 83,732. San Francisco Bay Area activity increased by 19.5 percent over the 1996 level to 17,113 homes, primarily in the Oakland and San Jose areas. The largest percentage increase in activity in 1997 was in the San Diego metropolitan area, where single-family permits in 1997 were up 41.5 percent (8,237 units) over 1996 levels. In Riverside-San Bernardino -- the highest volume market in Southern California -- single-family permits were issued for 13,704 homes, which was a 17-percent gain. Gains in permit activity in response to increased sales characterized the other Southern California markets as well, with Orange County permits up 17 percent to 8,219 units and Los Angeles County activity up 22 percent to 6,348 units. Homebuilding in California is expected to continue to improve throughout 1998.

Arizona also contributed to the strong regional performance, with a 5.3-percent gain in single-family permits to 43,872 through December 1997. The Phoenix metropolitan area accounted for more than 70 percent of the State's activity. Nevada single-family permits were down 2 percent to 23,351 units, as Las Vegas permits fell just shy of the record set in 1996.

Sales of existing homes in California are paralleling increased home production. Existing home sales for 1997 reached 555,400 by December -- up 9.9 percent from 1996, according to the California Association of REALTORS^®. Gains were widespread throughout the State. In addition, the foreclosure rate dropped significantly in 1997 with the improving economy. In Nevada, resales were up approximately 6 percent in Las Vegas in 1997, and the median sales price was up 4 percent over the year to $123,200. A very strong December resulted in another record for new home sales as well, according to the Las Vegas Housing Market Letter.

Continued favorable conditions in the region's rental housing markets encouraged builders to increase multifamily housing permit activity by 16 percent to 52,542 units in 1997. California led the way with a 43-percent increase to 26,176 units. The San Francisco Bay Area registered a 33-percent increase to 9,549 units. With the 75,000-plus new jobs in the Bay Area in 1997 alone, apartment production remained insufficient to affect the tight market conditions. Apartment vacancy rates of 4 percent or less were typical. Due to the tight market conditions and very low vacancy rates in Santa Clara County and in San Francisco, demand for rental housing spilled over into the adjacent Oakland and Santa Cruz metropolitan areas.

In the Riverside-San Bernardino rental market, occupancy of mid- to high-rent properties dropped from 96 percent to 94 percent in fourth quarter of 1997, and occupancy in projects in the lower end of the market remained at 90 percent or below. Rents in the metropolitan area were flat. Orange and San Diego Counties continued to exhibit tight rental market conditions, and vacancy rates of 4 percent or below were typical for both areas. The tight conditions resulted in a 30-percent increase in the number of multifamily units permitted (4,119 units) in Orange County through December 1997 and nearly a tripling of activity in the San Diego area to 2,903 units. Conditions in Los Angeles County remained moderately soft but improving as of the fourth quarter of 1997, with occupancy rates running between 92 and 93 percent. Tight conditions were noted in the West Side and Hollywood areas. Through December 1997, multifamily activity in the Los Angeles area was up 27 percent to 3,843 units.

Nevada multifamily permit activity for 1997 was down 16 percent to 11,325 units. This activity was dominated by the Las Vegas market, where multifamily permits totaled 10,297 units -- a 13-percent drop from 1996. The overall vacancy rate moved up to 7 percent as new, high-rent apartments continued to enter the market. This is causing rent increases to moderate.

Spotlight on Phoenix, Arizona

The Phoenix economy remains quite strong. Phoenix was recently ranked as one of the top five fastest growing metropolitan areas in the country based on population growth. From 1994 through 1997, Phoenix experienced its strongest employment growth ever with the addition of more than 310,000 new jobs. In the 12-month period ending in November 1997, nonagricultural employment increased by 81,400 jobs, a 6-percent increase over the previous 12-month period.

The labor market is very tight, with a low 2.8-percent unemployment rate. The key growth sectors are tourism, services, and high-technology manufacturing. Motorola, Allied Signal, Intel, Honeywell, and Boeing all have major facilities in the Phoenix area. Commercial construction is providing an additional lift to the economy. The Bank One baseball stadium is nearing completion in downtown Phoenix. In addition, construction of several new hotels and almost 11 million square feet of new office and industrial space was completed in 1997.

The robust labor market attracted 600,000 new residents to Maricopa County in the 1990s, which increased the population of the metropolitan area to 2.7 million persons as of July 1997 -- a 3.5-percent annual growth. Besides the increased employment opportunities, the area continues to be a major destination market for retirees. With demand conditions like these, Phoenix remained one of the top metropolitan areas for residential construction volume, ranking third in single- family activity and ninth in multifamily production. Single-family permits for 1997 totaled 31,948 homes -- an 8-percent increase over 1996 -- setting a record for the third consecutive year. Inventories remained balanced. Production and sales are expected to decline somewhat in 1998 as economic and population growth ease.

The Arizona Regional Multiple Listing Service recorded 43,156 resales in 1997, breaking the record set in the previous year by 5.5 percent. The level of existing home sales was nearly double the low rates of 1988 and 1989. As prices of new homes continued to increase, prices of existing homes rose as well; the median sales price was approximately $113,700 in 1997, up slightly less than 8 percent from a year earlier.

Economic growth and in-migration in the early 1990s eliminated the excess supply of rental housing from the overbuilding of the late 1980s and created a tight market by 1993. Beginning in 1994, multifamily rental production increased significantly, averaging more than 8,500 units annually. In 1997, permits were issued for 11,030 multifamily units -- a 12-percent increase from 1996. Despite the high volume of apartment construction, the overall market remained balanced. The Arizona Real Estate Survey indicated an apartment vacancy rate of 5 percent as of the fourth quarter, almost the same as the previous year. The vacancy rate in apartment projects of 100 or more units was slightly higher, averaging about 6 percent. Overall rent increases have been modest at approximately 3 percent after concessions are taken into account. Absorption is strong, although concessions have become more common in the most active submarkets where many competing properties are in lease-up. In some cities in the metropolitan area, constraints on growth are starting to appear in the form of higher land costs, development fees, and more restrictive zoning. As activity in outlying submarkets peaked, some developers sought out niche markets in downtown Phoenix and other in-fill locations and sought out expanded product types, such as senior apartments and assisted-living facilities. The outlook for 1998 is for balanced market conditions with slowed rental production.