The Midwest region's economy remains relatively strong. Employment growth in the third quarter of 1998 slowed a bit to 1.4 percent annually, down from 1.8 percent in the third quarter of 1997. Unemployment rates as of August were below the national average in all States of the region. Chicago's growing economy is seeing job gains of 2 percent annually in 1998 and the lowest unemployment rates in more than a decade. In the Detroit-Ann Arbor area, construction activity will likely continue at a strong pace through the end of the 1990s, with $18 billion in new commercial and residential projects expected to come online during the next 3 years. Milwaukee's new $170 million Midwest Express Convention Center is forecast to add 5,000 jobs in the downtown area by 2000.
Single-family building permit activity in the Midwest region during the third quarter of 1998 continued the strong performance of the first half of the year. Through September, permits were issued for 146,979 units in the region, an increase of 11 percent over 1997 volume for the same period. All States reported significant gains, with Minnesota at 20 percent leading the way. At the current pace, 1998 will be the second-best year for home construction since 1978.
Existing home sales as of the second quarter of 1998 were at an annual rate of 984,000 homes, the highest volume of the 1980s and 1990s. Chicago and Detroit area lenders reported that applications for mortgage loans, which normally slow in August, remained strong through September. Home price appreciation in the region, 30 percent over the past 5 years, was the second highest in the Nation, according to HUD's Office of Federal Housing Enterprise Oversight.
Existing home sales in the Detroit-Ann Arbor area totaled 32,160 homes for the first 8 months of 1998, a 17-percent increase over the same period of the previous year. Continued strong demand for new homes in all price ranges pushed up single-family building permits for the area by 8 percent, to 16,992 units for the first 9 months of 1998.
The Wisconsin Builders Association expects approximately 20,000 single-family homes to start construction in the State this year, an 8-percent increase over 1997. The annual rate of existing sales in the State as of the second quarter of 1998 reached 117,000 homes, a 14-percent increase over the same period in 1997. The Federal Home Loan Bank of Chicago reported that $1.3 million made available in March 1998 to homebuyers in Wisconsin for financial assistance with down-payments and closing costs had been committed by the end of July.
In the Cleveland area, existing home sales in 1998 totaled 17,540 homes through September 1998, a 10-percent increase over the same period last year. Ohio homebuilders increased single-family building permit activity in the State by 13 percent in the first 9 months of 1998. In Columbus 2,930 new homes were sold in the first 6 months of 1998, a 7-percent increase over first-half 1997 volume.
Chicago's sales housing market continued to thrive in the third quarter of 1998. Existing home sales in the first 8 months of 1998 totaled 16,605 homes, up 14 percent compared with the same period last year, according to the Chicago Association of REALTORS®. Condominium sales increased even more, up 26 percent through August to 6,813 units compared with 5,380 sales in the first 8 months of 1997. River East, in downtown Chicago, began construction of its first phase in September and is experiencing very strong presales activity. The development is planned to eventually comprise 2,100 luxury homes selling for $400,000 to $2 million. The city's planned allocation of $1.3 billion to affordable housing over the next 5 years continues the strong commitment in this sector, where 34,689 new and existing units have been assisted since 1994 using $696 million provided by HUD and local and State governments.
The market for all types of housing for seniors has been very active in the Midwest. The American Seniors Housing Association's 1998 construction survey ranked Indiana, Minnesota, and Ohio in the top 10 States for construction of seniors housing. The survey identified 62 projects, about evenly divided among the three States. Construction on suburban Chicago's third major retirement community of the 1990s began in August at Carillon North in Lake County. Presales are going well for the 400 townhomes and single-family units priced from $150,000 to $225,000.
Apartment markets generally remain in good condition throughout the Midwest region with occupancy in the 93- to 97-percent range as of the third quarter of 1998. Multifamily building permit activity in the first 9 months of the year was slightly below 1997's level for the same period, but the total volume of 41,091 units was still one of the highest for the decade. Activity in Minnesota increased 12 percent, followed by Michigan with a 7-percent gain. However, Illinois recorded the largest percentage decline -- 27 percent -- due in great part to a decline in available approved multifamily sites in the Chicago area and the substantial existing pipeline.
The Chicago area rental market tightened in the third quarter of 1998. A July survey by Grubb and Ellis of 107,800 apartments showed 97-percent occupancy, up from 96 percent in January and 95 percent in July 1997. One suburban developer of luxury apartments reported that market conditions in the Aurora-Naperville area began improving sooner than expected. A 464-unit development in Oakhurst rented-up 72 apartments in 3 months in a performance that has not been seen in this submarket since 1996. Similar leasing experiences have been reported by other luxury projects. The number of multifamily building permits issued in the Chicago area was down 18 percent to 5,531 units in the first 9 months of 1998.
The Detroit-Ann Arbor area's strong rental market encouraged builders to increase multifamily housing permit activity by 31 percent to 4,657 units in the first 9 months of 1998. The Dayton and Columbus rental markets have become more competitive. As a result of the large number of new units completed during the past 2 years, occupancy rates have fallen and use of concessions has increased. A September 1998 survey by Corson & Associates of 19,180 apartment units in Dayton showed occupancy at 92.7 percent, compared with 94.5 percent as of September 1997. Columbus apartment vacancy rates have drifted upward to 4 to 6 percent, from 3 to 5 percent last year.
Spotlight on Minneapolis-St. Paul, Minnesota
Stimulated by a growing local economy, the population in the Twin Cities area increased by 10 percent from 1990 to 1997 to almost 2.8 million. Employment in the area has grown at an average annual rate of 2.3 percent, or more than 106,000 new jobs annually during the 3-year period ending August 1998. The unemployment rate has dropped from an already low 2.4 percent in August 1997 to 1.5 percent during August 1998. Construction employment has been very strong, fueled by activity in office building, public works, and residential construction.
More than 1.1 million square feet of office space have been absorbed annually during the past 2 years. Occupancy by mid-1998 had increased to 93 percent, a 14-year high. Demand for Class A office space in the Minneapolis central business district is very strong, with a 4-percent midyear vacancy rate reported. Currently 18 buildings with about 4 million square feet are under construction, in the metropolitan area, including four office towers in downtown Minneapolis. In St. Paul, Mutual Insurance Company is carrying out a $102 million downtown office expansion.
Minneapolis-St. Paul is one of the strongest markets in the Nation for homeownership and homebuilding. From 1995 through 1997, building permits for new homes in the metropolitan area averaged 13,460 units annually. In the first 9 months of 1998, home construction activity was up 22 percent over last year to 12,462 units. Builders are upbeat about new home sales for the rest of the year and into 1999, following the high turnout of prospective homebuyers at the Parade of Homes Fall Showcase held in September.
The Twin Cities area is experiencing its third consecutive record year for existing home sales in 1998. There is an increasing shortage of entry-level homes available for first-time buyers. Increased demand for starter homes has made full-price offers common and helped boost the median sales price by 6 percent to $121,000. First-half sales totaled 24,800, up 19 percent over 20,800 in the first 6 months of 1997. Sales activity remained brisk in July and August, up 17 and 15 percent, respectively, over the same months of the previous year.
Fannie Mae's neighborhood-focus program has targeted about $50 million for the inner-city areas of south Minneapolis -- Central, Phillips, and Powderhorn. Fannie Mae will work in partnership with neighborhood organizations and the major employers in the areas, Honeywell and Allina Health Systems, to support housing and community development goals in these areas.
The rental housing market has become increasingly tight in recent years due to a shortage of new construction, particularly in the middle and lower rent ranges. For most of the decade, rental housing production, which has averaged approximately 2,800 units annually, has been limited to specialized markets, including cooperative developments for the elderly and highend townhouses. FHA mortgage insurance has helped finance the majority of this production, as well as some mixed-income developments in suburban communities. Some communities have had success developing both tax-credit projects for families and mixed-income projects as they attempt to meet commitments under Minnesota's Livable Communities Act to provide much-needed housing for lower income families with jobs in their areas. However, apartment vacancies continue to disappear. A September 1998 survey of close to 134,500 apartment units in the metropolitan area showed a vacancy rate of 1.1 percent, down from 1.9 percent in September 1997. Multifamily permit activity through September 1998 totaled 2,294 units, up 2.6 percent.
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