Regional Activity

Midwest

The Midwest economy continued to show modest growth through the second quarter. Nonagricultural employment increased by 275,000 jobs, or 1 percent, during the 12-month period ending in June 2000. Labor markets remained tight throughout much of the region, with unemployment rates ranging from 2.3 percent in Minnesota to 4.2 percent in Illinois.

Home-building activity in the Midwest remained strong in the second quarter. Building permits were issued for 100,848 single-family homes in the first 6 months of 2000, 1 percent below a very strong 1999. Minnesota led the region with a 6-percent gain. The Builders Association of the Twin Cities reported that the new construction market continued to be very strong; permits were issued for 8,959 new homes. Indianapolis-area builders expect approximately 13,500 new homes to start construction in 2000, only slightly below the record of 14,100 homes in 1999.

The Building Industry Association of Southeast Michigan also expects another good year for home construction in the Detroit-Ann Arbor area, where 20,000 new homes are likely to start construction in 2000 compared with 22,000 homes in 1999 and in 1998. The city of Detroit's economic turnaround is attracting builders to the downtown area, where 500 residential units are under construction; 400 of these sales units are priced from $150,000 to $200,000, and 100 units are market-rate rentals. According to the Greater Downtown Partnership, rents for two-bedroom units will average $1,050 a month. Another 945 sales units and 550 rental units are expected to start construction within 18 months. Several recent conversions of commercial and office space to apartments were very successful. A former hotel in the process of being converted to apartments is already receiving inquiries about leases. One-bedroom rents are expected to range from $685 to $735 a month, and two-bedroom units will range from $895 to $1,250. Developers of the Garfield Building have reported leasing the 52 loft units in less than a month's time. Downtown Detroit is expected to see significant job growth during the next 2 years as the result of the completion of 3 casinos and Compuware Corporation's planned relocation of 5,000 employees to its new downtown headquarters.

Sales volume for the first half of the year was at an annual rate of 928,000 homes, down 2.5 percent from the comparable period in 1999. The healthy local economies in the region continued to sustain a high volume of sales during the second quarter. The Ohio Association of REALTORS reported 52,600 existing homes sold in the State through June 2000, almost equal to the volume of the first 6 months in 1999. In the Minneapolis-St. Paul area, strong demand for homes in all price ranges helped boost the average price of existing homes sold in the first 6 months by 9 percent to $166,400. Sales were up 2.4 percent to 23,300 homes during the first half of 2000.

Chicago's robust economy and increased demand for housing continued to fuel the booming sales market. The Chicago Association of REALTORS reported 54,100 existing homes sold in the metropolitan area during the first 6 months of 2000, nearly identical to the high sales volume of last year. In the city of Chicago, existing homes in some north side neighborhoods sold within a day or two of listing, many above list price. Single-family building permit activity in the Chicago metropolitan area was up 3 percent through June to 13,571 homes, while new home sales increased 11 percent.

The Homebuilders Association of Greater Chicago reported business was as good as it could be, with construction activity and new home sales expected to remain at high levels throughout the year. The city of Chicago has allocated $334 million to affordable sales housing in 2000, continuing a strong commitment. The program has helped provide financing for 51,500 new and existing units since 1994, using $1.2 billion provided by HUD and local and State governments.

Multifamily housing construction activity in the Midwest region for the first 6 months of 2000 continued to show increased strength. Permits were issued for 28,111 units, a 2-percent increase over the first 6 months of 1999. Minneapolis-St. Paul's tight rental market recorded multifamily permit activity totaling 1,890 units. A June survey of 135,900 rental units in the metropolitan area by Apartment Search showed a vacancy rate of 1.5 percent, unchanged from June 1999. Activity in the Detroit-Ann Arbor area was down 35 percent in the first 6 months of the year to 1,726 units. However, builder interest is strong, and apartment occupancy is good. Occupancy in the Detroit metropolitan area as of the second quarter of 2000 was approximately 95 percent.

In the Columbus area, strong rental demand meant a 9-percent increase in permit activity to 2,587 units. Encouraged by strong apartment leasing activity in Franklin County near New Albany and Grove City, one apartment developer will start construction on 1,000 new apartments during this year, compared with 600 units they normally build in an average year. Cleveland's downtown rental market is very active, with 600 new units currently under construction and another 500 apartments expected to start construction this year. HUD is providing mortgage insurance for the 295-unit Statler Arms Apartments, the largest downtown project since the 960-unit Reserve Square development in 1973.

The Chicago metropolitan area's apartment vacancy rates were in the 4- to 5-percent range in April, and the area continues to attract large amounts of investment capital. Marcus & Millichap Research Services reported 893 apartment projects were sold in 1999 for $1.2 billion, a 25-percent increase in sales. Strong sales activity in 2000 is expected across the metropolitan area. Multifamily building permit activity for the first half of 2000 in the Chicago metropolitan area was up 28 percent to 5,436 units. The tightening suburban markets along I-88 East West Tollway and in north Lake County have encouraged builders to increase rental housing production in these areas. Appraisal Research Counselors' second quarter 2000 survey showed that 9,100 new apartment units are likely to enter the market in the Chicago suburbs during the next 3 years, double the 4,500 units that have come on line each year since 1997. In the city of Chicago, another 3,000 new apartment units are expected to enter the market during the next 2 years, many in the downtown area where current occupancy rates are 95 percent or better. Village Green Management reported that the Fisher Building opened in the South Loop this Summer to a strong market response. Approximately 15 percent of the 184 units were leased in the first 3 weeks, with rents starting at $1,100 and $1,700 a month for one- and two-bedroom units, respectively.

Spotlight on Cincinnati-Hamilton, Ohio-Kentucky-Indiana

Cincinnati's diverse economy exhibited strong growth, with employment gains averaging more than 2 percent annually during the past 5 years. Nonagricultural employment in the metropolitan area increased by 18,400 jobs, or 2.1 percent, in the 12 months ending June 2000. Strong job gains in the services, trade, transportation, and local government sectors kept the unemployment rate in the area below 4 percent since 1997.

Construction activity in the metropolitan area will remain robust in 2000 due in large part to increased riverfront development. Downtown Cincinnati is in the middle of a $1 billion revitalization program of new sports stadiums for the Reds baseball and Bengals football teams, specialty retail shops, office buildings, and almost 800 units of residential development. Across the Ohio river in northern Kentucky, the cities of Covington and Newport also are encouraging similar riverfront redevelopment.

The population of the metropolitan area was an estimated 1.9 million as of July 1999, an increase of 8 percent since 1990. The population of the city of Cincinnati declined 7 percent since 1990. However, the suburbs of the Cincinnati metropolitan area recorded strong gains. Suburban Boone County, in Kentucky, and Warren County, in Ohio, led the area with population increases of 44 and 34 percent, respectively.

Home construction activity in the Cincinnati area has been strong in recent years. The number of single-family building permits averaged 9,300 units annually from 1996 through 1998 and increased to 11,073 in 1999. Permit activity in the first 6 months of 2000 totaled 5,054 units, down 10 percent from the same period in 1999. Butler and Warren counties were very active and accounted for almost one-half of the single-family units permitted during the past 4 years, according to the Homebuilders Association of Greater Cincinnati. The Ohio Association of REALTORS reported that sales of existing homes in the Cincinnati-Hamilton area during the first 5 months of 2000 held steady at 8,000 homes, and the average sales price was up 5 percent to $145,400.

Multifamily building permit activity in 1999 totaled 4,366 units. Activity in the first 6 months of 2000 was down 53 percent to 1,079 units. A local apartment developer attributed part of the decline to the large 1,200-unit pipeline of luxury apartments under construction in northeast Hamilton and southwest Warren Counties. Multifamily development also was very active in Butler County and in the towns of Burlington and Independence near the regional airport in Kentucky.

Rental housing market conditions throughout 1999 were tighter than in 1998, with apartment vacancy rates in the 3- to 4-percent range compared with 4 to 5 percent in 1998. CB Richard Ellis reported that apartment vacancy rates in the area are likely to increase during the second half of 2000 as the units under construction enter the market.


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