Employment in the Pacific region expanded more rapidly in the 12 months ending in February 2000 than it did in the previous 12-month period. Nonagricultural employment was up 603,000 jobs, a 3.5-percent gain, compared with 3.2 percent in the 12 months ending February 1999. In California, the recovery in technology exports and increased construction activity helped create 445,000 new jobs during the period. After recording employment losses for most of the decade, the Hawaiian economy recorded a 1.9-percent gain during the period, partly as a result of increased tourism. During the same period, employment gains in Arizona totaled 99,100, a 4.7-percent increase, and employment in Nevada was up 5.1 percent. Unemployment dropped significantly in the Pacific region, falling to 4.5 percent in February 2000, with San Francisco and Phoenix reporting rates below 2 and 3 percent, respectively. The rate of employment growth in California in 2000 is expected to equal or exceed last year's 2.8-percent gain. Arizona and Nevada are expected to see strong but more moderate rates of growth compared with 1999 gains.

In the first quarter of 2000, home production in the region generally continued at a robust pace despite higher interest rates. Builders took out approximately 41,100 single-family housing permits in the region during the first 3 months of 2000. California recorded 22,061 permits for homes, 3.3 percent more than in the first quarter of 1999. Single-family production for the same period held steady in Nevada at 6,178 units.

The California Association of REALTORS^® (CAR) reported that the annual rate of existing home sales as of February 2000 reached 519,000, down only 1 percent from 1 year earlier. The median sales price as of February 2000 for existing homes in the State was approximately $233,000. In the San Francisco Bay Area, where CAR estimated that 25 percent of fourth quarter 1999 transactions involved stock market profits, sales prices in February 2000 were up 27 percent from the same month 1 year earlier. Higher prices and interest rates have resulted in a substantial drop in affordability in many of the State's coastal counties.

Multifamily housing building permit activity in the Pacific region in the first quarter of 2000 totaled 16,416 units, more than a 27-percent increase compared with volume for the same period in 1999. Activity in California's tight rental markets was up 51 percent, with permits issued for 11,219 multifamily units. Rental vacancy rates in the San Francisco Bay Area ranged from 2.2 percent in Santa Clara County to 4.6 percent in Alameda County. Spillover demand from the San Francisco and San Jose areas to more affordable Oakland (Alameda County) and Solano County have resulted in substantial reductions in the rental vacancy rates in those areas as well.

The Southern California rental housing market continued to tighten during the first quarter of 2000. The overall vacancy rate in the Los Angeles County area was estimated to be around 5 percent, but the rate varied from 8 percent in parts of the San Fernando Valley to less than 4 percent in the coastal areas. San Diego's rental market was also tight, with an overall rental vacancy rate of close to 4 percent. The Riverside-San Bernardino metropolitan area continued to record the highest vacancy rate, 8 percent. Conditions continued to be tight in the Orange County, Ventura County, and Santa Barbara County rental markets, where vacancy rates of 4 percent or less are typical.

Multifamily building permit activity in Arizona totaled 4,023 units; in Nevada, 1,106 units. Activity in Nevada during the first 3 months of 2000 was less than half the volume of last year. During the same period, activity in Phoenix was up more than 50 percent. Apartment vacancy rates in the Phoenix area rose gradually during the past year, to 6 percent overall and more than 7 percent in properties of 100 or more units. Vacancy rates of up to 9 percent and rental concessions prevailed in a number of the most active suburban submarkets and in the central Phoenix area. The market is expected to remain competitive for the remainder of the year as new apartments continue to reach the market.

In Las Vegas, the market was balanced overall, but some softness was reported in selected submarkets. Apartment vacancy rates were in the 6- to 7-percent range overall; however, some submarkets reported rates as high as 10 percent. Concessions were widespread in new upscale rental developments, and rents remained flat. With the decline in multifamily permit activity, market conditions are expected to become more balanced over the remainder of the year.

Spotlight on Orange County, California

In the early 1990s, Orange County was adversely affected by downsizing in the defense, aerospace, and banking industries. The unemployment rate reached 6.8 percent in 1993, but the local economy has made a strong recovery since. The University of California at Irvine, with 18,700 students and more than 2,500 faculty and staff, has helped attract a wide range of high-technology companies. Although Boeing is still an important force in the local economy, currently employing 12,000 persons, the county has attracted an increasing number of Internet, computer, and software companies, such as Broadcom, eMachines, Tickets.com, and Epicor.

As of March 2000, nonagricultural wage and salary employment in Orange County totaled 1,379,000 persons, an increase of 38,900 persons, or 2.9 percent, from March 1999. The unemployment rate as of March 2000 was 2.3 percent, one of the lowest rates in the Nation. Strong employment gains are expected for 2000 but at a more moderate rate than growth in 1999. Employment will be boosted in early 2001 with the completion of Disneyland's new $1.5-billion California Adventure theme park, which is expected to provide 5,000 jobs. In addition, nearly $4 billion in construction of new hotels, a convention center expansion, and highway improvements will occur during the next 12 months.

Since 1994, single-family building permit activity in the Orange County metropolitan area has averaged approximately 7,300 homes annually. Existing home sales and price increases also have been strong during the past 3 years. During the early 1990s, housing values in some submarkets dropped by as much as 50 percent. Since then, values have passed their prerecession levels and continue to escalate. As a result, Orange County has become less affordable to many of the area's workers, who now seek more affordable housing in Riverside and San Bernardino counties. The median sales price in 1999 for existing homes was $281,000, up 7.6 percent from 1998. New and existing home sales in the Orange County area averaged more than 49,700 homes annually during 1998 and 1999. The median sales price for homes sold during the first quarter of 2000 was up about 11 percent from the comparable period in 1999, and sales volume remained relatively constant, according to data from CAR.

The large construction volume in the late 1980s through 1990, combined with the local recession, caused the rental housing market to soften in the early part of the 1990s. From 1991 through 1993, multifamily construction declined significantly, to approximately 2,000 units annually. The volume since 1994 has averaged approximately 3,600 units annually. The rental vacancy rate currently is estimated to be 4 percent, down 2 percentage points in the last 3 years despite the increase in apartment construction. The current level of activity is inadequate to support the high rate of employment expansion. The production shortfall is partially due to the high cost of construction and the decline in available building sites, particularly in the mature areas in the northern part of the county. A large part of the production in recent years has been in high-rent, amenity-rich developments for upper-income households.