The Midwest economy saw moderate gains in 1998. Nonagricultural employment increased by 1.4 percent or 330,000 jobs during the 12 months ending in November. The rate of employment growth in the region was much slower during the second half of the period due in part to a 20-percent drop in exports to Asia. Employment growth of 1 to 2 percent annually is expected to continue into 1999, spurred by a healthy construction industry and expansions in the services sector. Chicago's growing service sector and increased demand for new office space helped lift commercial construction activity in 1998 to the highest level in the past 10 years. Minneapolis-St. Paul is experiencing strong residential building activity and an office construction boom, which should last through 2000.

Home construction in the Midwest was very strong in 1998, and builders are upbeat about construction and new home sales in 1999. In 1998 building permits were issued for 194,406 single-family homes, a 13-percent increase over 1997, and the highest level in the past 20 years. The largest metropolitan areas in the region reported gains in single-family activity. In addition, manufactured housing shipments held steady at 40,163 homes in 1998 compared with 39,934 homes in 1997.

The Builders Association of the Twin Cities reported that homebuilding in 1998 continued to benefit from Minneapolis-St. Paul's robust economy. Building permits were issued for 16,811 new homes in the metropolitan area for the year, up 23 percent from 1997. Enjoying strong sales of new homes, Indianapolis builders reported that 1998 was the best year for single-family construction of the 1980s and 1990s, with more than 12,544 homes permitted.

Encouraged also by strong home sales, Chicago area builders took out permits for 25,478 single-family units in 1998, a 14-percent increase over 1997. The 22,500 new homes sold in the area during 1998 represented the highest volume of sales activity since 1973. On the near west side of Chicago, ABLA Homes (Jane Addams, Robert Brooks, Loomis, and Grace Abbott projects), a $430 million redevelopment program, started with the rehabilitation of 130 public housing units. More than 3,000 townhomes, single-family detached units, and apartments are planned for the mixed-income developments over the next 8 years. HUD allocated $60 million to demolish 3,010 units and replace them with 1,450 new public housing units; the city contributed $84 million to affordable housing and open space; and private investment is expected to reach $287 million for new commercial and residential development. The city's $54 million environmental cleanup of brownfields sites, using HUD Section 108 funds, is helping builders meet the strong demand for new homes in south side neighborhoods.

The annual rate of existing home sales in the Midwest region in 1998 was a record high 989,400 homes, 14 percent above 1997's. Illinois and Minnesota recorded the largest percentage increases in activity, at 17 percent each. Local sources report activity in the Chicago area was up 15 percent. The NATIONAL ASSOCIATION OF REALTORS^® reported sales of existing homes for 1998 of 204,900 in Ohio, up 9 percent over 1997. Sales in Columbus and Cincinnati for the year were up 11 and 8 percent, respectively, from last year. Continued growth in Wisconsin resulted in a good year for home sales, with volume up 15 percent.

Midwest rental housing markets remain sound, with apartment occupancy in the 92- to 97-percent range at year end and very strong demand for new units. The number of multifamily building permits issued in the region during 1998 totaled 58,968 units, off only 3 percent from 1997. Indianapolis' rental market is becoming increasingly competitive. Vacancy rates have been drifting upward the past 2 years. CB Commercial's 1998 survey of 110,000 apartment units in the metropolitan area showed an 8.2-percent vacancy rate in the third quarter, up from 7.2 percent for the comparable period in 1997. This survey also reported that 6,200 apartment units entered the market in the past 3 years, and another 3,900 new units could come on the market in 1999. Tight market conditions continue in the Minneapolis-St. Paul market, with vacancy rates of 2 percent or less common in apartment developments throughout the area. Multifamily building permit activity was up 25 percent to 3,830 units in 1998.

Milwaukee's tightening rental market encouraged builders to increase multifamily permit activity by 8 percent to 3,205 units in 1998. The Madison area's healthy economy continues to support a strong rental market. More than 1,000 apartment units have been absorbed annually in the metropolitan area since 1990, with overall occupancy holding steady at about 94 percent.

Western Michigan's rental markets are balanced, with apartment vacancy rates in the 5- to 7- percent range. In Grand Rapids, an owner of 4,500 apartment units reported 93-percent occupancy as of December 1998, unchanged from 1997. The rental vacancy rate in fast-growing Holland, Michigan, is less than 5 percent, and apartment developers continue to report strong leasing activity in the area.

Columbus' rental market remains balanced but, with the high volume of apartment development, conditions may not stay that way. According to data from Corson & Associates, an estimated 5,400 new apartments were completed in 1998. The October survey of 81,000 apartment units shows that occupancy fell 1 percentage point from October 1997 to 93 percent. Permits were issued for 4,628 multifamily units in 1998, and local sources report that another 3,000 to 4,000 units are in various stages of planning.

Spotlight on Detroit-Ann Arbor, Michigan

Detroit-Ann Arbor area employment has increased by about 2 percent annually since 1995, and unemployment has averaged 4 percent, well below the unemployment rates of 7 to 9 percent of the early 1990s. Nonagricultural employment increased by 55,000 jobs during the 12 months ending in November 1998. Construction employment grew fastest, by 8 percent, and is expected to remain strong this year. General Motors' $1.5 billion capital improvements, Metro Airport's $1.6 billion expansion, three casinos costing $1.8 billion, and two new sports stadiums for the Tigers and Lions will dominate building activity.

Detroit's much-improved economy has stimulated significant investment in the city. Activity in Detroit's Empowerment Zone also has been significant, with nearly $1 billion committed so far for revitalization. The New Center area north of downtown is experiencing increased activity, with expansion of the Henry Ford Hospital, the State's commitment to rehabilitate and lease space in General Motors' former headquarters, and the construction of new condominium housing.

Strong homebuilding activity has continued in the Detroit-Ann Arbor area in recent years, following the automobile industry's recovery in 1993. From 1994 through 1997, the number of single-family permits averaged 20,200 units annually, well above the 1990-1993 average of 13,100. Activity continued to increase in 1998, with permits issued for 22,723 single-family homes. Especially active areas include Macomb Township, in Macomb County, and Canton Township, in Wayne County. New homes priced from $160,000 to $225,000 are the most popular. The Building Industry Association of Southeast Michigan anticipates another good year in 1999.

The strong local economy fueled record home sales in 1998. New and existing home sales in the first 11 months totaled 45,000, a 15-percent increase over the same period last year. The median sales price for existing homes increased from $122,500 to $133,500, or 8.9 percent, between the third quarter of 1997 and the third quarter of 1998. The brisk sales market helped lift the homeownership rate in the metropolitan area to 74 percent as of the third quarter.

The rental housing market remains solid, and apartment construction in the Detroit-Ann Arbor area has paralleled the economy in recent years. From 1991 through 1993, multifamily permit activity averaged 3,183 units annually. Activity increased to an average of 4,545 units from 1994 through 1997. In 1998 permit activity increased to 5,915 units, a dramatic 32-percent gain. Apartment development has been especially strong in suburban Oakland and Wayne Counties, which have been leaders in job growth in the area.

A November survey of 34,500 units by the Metropolitan Apartment Guide showed occupancy at 94 percent, little changed from November 1997. Village Green Management reported that absorption of new apartments in 1998 was the strongest in the company's history. Market response was very strong in Troy, near Chrysler Corporation headquarters. A high-rent apartment development there has preleased all 295 units.