Recent signs indicate that the economic conditions in the Southwest are improving. The rate of job loss has slowed significantly since fall 2002 and may have bottomed out. Nonfarm wage and salary employment remained essentially unchanged during the first 6 months of 2003. During the 12-month period ending June 2003 employment averaged 14.7 million, down 38,100 jobs, compared with the loss of more than 142,000 jobs in the previous 12 months. Gains of 65,400 jobs in educational and health services and of 37,200 jobs in government over the past 12 months partly offset the loss of 77,400 jobs in manufacturing and continued losses in the transportation, trade and utilities, professional and business services, and information sectors.
The economy in Oklahoma registered the largest percentage decline in employment at 18,200 jobs, or 1.2 percent, during the 12 months ending June 2003. Employment in Texas for the 12 months was down 27,300 jobs, or 0.3 percent lower than the previous 12 months. New Mexico is the bright spot in the Southwest economic picture. During the past 12 months the number of jobs in New Mexico has increased by 12,300, or 1.6 percent, with an additional 5,800 jobs in educational and health services and an additional 4,000 jobs in government.
Housing market conditions throughout most of the Southwest continue to be characterized by high levels of new construction despite generally flat employment. As a result conditions continue to soften in most metropolitan area rental markets; signs indicate a softening sales market in several market areas.
In the Southwest as a whole permits were issued for 158,661 single-family units over the past 12 months, up 12 percent compared with the previous year. In New Mexico existing home sales and demand for new homes remained strong in the first half of 2003 because of sustained employment growth, low interest rates, and affordable prices. This state had the highest rate of increase in single-family permits in the region over the past 12 months at 20 percent. In both New Mexico and Texas single-family building permit activity remains at record levels for the second year. Throughout the remainder of the region single-family permits are also up compared with last year, as low interest rates continue to support the sales market.
In Texas demand for new single-family homes is very strong. Single-family permit activity in the past 12 months increased 10 percent while average monthly home sales decreased slightly over the past 12 months to 16,300 per month. Annual average prices were up 2.4 percent but have remained flat during the past 6 months. Market conditions are expected to become even more competitive because single-family listings in the state increased 16 percent to 97,100 over the past 12 months. The Austin, Dallas, and Houston metropolitan areas all registered increases in listings of more than 20 percent. The competitive conditions in the sales market reflect a number of factors: the volume of speculative construction of new homes in anticipation that buyers will take advantage of low interest rates and reduced demand because of the loss of approximately 100,000 jobs in the high-technology sector in the state during the past 2 years. Interest rate buydowns and builder discounts of up to $25,000 have occurred in Dallas and, on a more limited basis and to a lesser extent, in other metropolitan area markets.
Although not record-setting multifamily permit activity for the 12 months ending June 2003 totaled 53,992, a 17-percent increase over the same period a year earlier. With the exception of Oklahoma, where activity was down 15 percent, the increases range from almost 20 percent in Texas to more than 70 percent in Louisiana and New Mexico.
The volume of apartment construction remains high throughout the region despite vacancy rates of 10 percent and higher in many major markets. Unless residential construction activity more closely approximates new household formation or a substantial number of jobs are added, most major metropolitan areas in this region could face sustained housing vacancy problems.
In the Houston metropolitan area building permits were issued for 17,243 units during the past 12 months, 90 percent more than a year ago. With a continued movement to homeownership and the loss of 12,000 jobs over the past year occupancy in the metropolitan areas apartment market has dropped 4 percentage points to an estimated 90 percent. Given the current level of apartment production occupancy rates are likely to further fall during the next year or so. However occupancy rates in the Austin and San Antonio metropolitan area rental markets have slightly improved, as multifamily permit activity during the past 12 months is down more than 40 percent in each of these areas.
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