Regional Activity

Pacific

Robust economic growth continued in the Pacific region, which saw a gain of 618,500 new nonagricultural jobs, or a 3.5-percent increase, during the 12-month period ending in May 2000. California and Arizona accounted for 460,000 and 106,000 of these new jobs, respectively. Phoenix added 71,000 jobs, a 4.6-percent increase during the period, and exports to the resurgent Mexican economy supported 22,400 new jobs in the Tucson area for a 6.7-percent increase. More than 32,200 new jobs were added to the Las Vegas area in the 12 months ending in May. Although employment growth was slower this year, the area will get a 4,500 job boost when the $1.1 billion, 2,567-room Aladdin casino-hotel opens in August. Improving tourism fueled a 2.2-percent increase in nonagricultural employment in Hawaii during the period. The labor market tightened generally in the Pacific region, with the unemployment rate falling from 5.8 percent to 4.8 percent. Unemployment rates of less than 3 percent were reported in the San Francisco Bay Area, Orange County, San Diego, Phoenix, Tucson, and Reno.

In the first 6 months of the year, permits were issued for 92,814 single-family homes, down less than 3 percent from the same period in 1999. Activity in California was almost unchanged from last year, with large gains recorded in the Sacramento and Modesto areas (14 and 38 percent, respectively). Los Angeles, Santa Barbara, and Santa Cruz metropolitan areas also recorded substantial increases in activity (23, 35, and 46 percent, respectively). Single-family permit activity in Nevada was down 3 percent from last year's strong pace. In Arizona, activity was down 9 percent to 26,092 homes in the first 6 months. Mainland buyer interest, primarily in the neighboring islands to Oahu, boosted Hawaii's new home production by more than one-third in the first 6 months of the year. Honolulu's resales jumped 20 percent in the first half of the year.

Showing resilience after weak April results, California home resales in May soared to a record annualized rate of over 580,500, up 7 percent over May 1999, according to the California Association of REALTORS. According to the Las Vegas Housing Market Letter, the median price of a new home in May was $155,000. Prices of new homes have increased approximately $10,000 in the past 12 months. Sales of new homes during the first 5 months of this year totaled 8,037 homes, off only 2 percent from last year's strong performance in the same period. Existing home prices were more stable, and sales volume was up 20 percent for the first 5 months of this year to 11,930 homes. In Phoenix, existing sales totaled 23,473 homes, virtually unchanged from the first half of the year.

Regional multifamily housing production totaled 33,044 units, up 30 percent in the first 6 months of the year. More than two-thirds of the activity was in California, where tight rental market conditions were reported in a number of local markets.

Market conditions remained very tight in the San Francisco Bay Area markets. A local survey of the 9-county San Francisco Bay Area indicated a rental vacancy rate of approximately 2 percent in larger, high-amenity properties, down from 3.6 percent a year earlier and the lowest since 1996. Bay Area vacancies ranged from under 1 percent in Napa County to 3 percent in Contra Costa County in the East Bay. The rental shortage pushed up Bay Area rent levels nearly 7 percent in the past year. Multifamily building permit activity increased 50 percent in the first 6 months in the San Francisco Bay area to 5,315 units. The San Jose metropolitan area Silicon Valley recorded the largest gain, with activity up 166 percent to 2,608 units.

The rental market in Los Angeles County remained balanced with an overall vacancy rate at approximately 5 percent, ranging from under 4 percent on the coast to 8 percent in the San Fernando Valley. Reflecting a growing demand for urban housing, 600 units of market-rate rentals are under construction, and another 400 are in the final planning stages in downtown Los Angeles. The Riverside-San Bernardino rental market is becoming more balanced, but there is still some softness. Vacancy rates hovered around 8 percent, primarily in the older properties. The San Diego, Orange County, Ventura, and coastal Santa Barbara markets were all tight, with apartment vacancy rates of 4 percent or less commonplace. The strong markets resulted in a 4-percent increase in overall rents in the Southern California region over the past year. As a result of the tightening market, multifamily permit activity in the Southern California region during the first 6 months of 2000 was up 78 percent, compared with the same period last year, to 14,337. Activity in the Los Angeles and Orange County metropolitan areas was almost double that of last year. In San Diego, activity was up 33 percent to 3,945 units, and Riverside- San Bernardino recorded 1,485 units.

Multifamily activity rose less than 2 percent in Arizona in the first 6 months of the year to 6,630 units. Phoenix accounted for approximately 85 percent of the activity. Near-record absorption rates kept Phoenix apartment vacancy rates at 6 percent overall. Rent concessions were widespread in the most active areas and in new properties. Rents rose less than 2 percent in the past year, and increases are expected to remain low because of the high volume of new apartments entering the market.

The Las Vegas rental market remained balanced, with an overall vacancy rate of 7 percent. Vacancy rates ran higher in older, less-competitive properties and up to 11 percent in some submarkets. Concessions were still common but not as generous as they were previously. Multifamily building permit activity in the first 6 months of this year was down 24 percent to 3,187 units.

Spotlight on Sacramento, California

The Sacramento metropolitan area stretches across three counties (Sacramento, Placer, and El Dorado), from Sacramento to the shores of Lake Tahoe. The population of the metropolitan area was approximately 1.6 million as of January 2000. The area experienced a moderate level of population growth of 17 percent, or 220,000 people, since 1990. However, since 1994, the area has experienced relatively strong employment growth, 3 percent or more, annually. In the 12 months ending in June 2000, nonagricultural employment increased by 3.1 percent, or 21,600 jobs, to 713,400. The current unemployment rate stood at 4.4 percent, almost unchanged from June 1999.

Sacramento is the State capital, and government plays a large role in the area's economy base. State government accounts for 12 percent of the total nonfarm employment, or 82,800 jobs. The service sector is even larger, comprising 28 percent of total nonfarm employment and accounting for approximately one-fourth of the job growth in the past 12 months. The strong economic growth has meant a substantial increase in the demand for office space, increasing rents and decreasing vacancy rates.

High-technology manufacturing has also been a significant factor in the local economy in recent years. Hewlett-Packard and Intel are the two largest firms in the area with 5,550 and 5,200 employees, respectively. Because of new State legislation expanding Native American gaming, there are several proposals for new casinos in the area, including two $100 million casinos planned near Auburn and Shingle Springs.

With the economic recovery in the State and the metropolitan area, single-family permit activity increased dramatically starting in 1998. In the past 2 years, activity averaged 10,070 homes annually. During the first 6 months of this year, permits were issued for 5,833 homes, a 14-percent increase over the same period in 1999. Local sources expect the trend to continue, and total activity for 2000 should be significantly above 1999 volume.

Demand for sales housing has been very strong during the past 2 years. According to the Gregory Group, a local market research firm, new home sales in subdivisions of 10 or more homes totaled 5,700 in the first half of this year, up 24 percent from the same period last year. The average price of a new home as of the second quarter was $258,000. Sales were reported strong in all price ranges, but particularly strong in the $150,000 to $200,000 range. Move-up buyers also made the $300,000 and over category very strong.

The existing sales market was also on an upswing in Sacramento County. The Sacramento Association of REALTORS reported 8,359 existing home sales through June, up over 15 percent compared with the first half of 1999. In June 2000, the median sales price of a home was $143,500, a 6-percent gain from June 1999. Consequently, the time on the market before a sale dropped to 40 days in June.

An improving economy and tighter market conditions caused multifamily housing activity to pick up to an average of 2,800 units in 1997 and 1998. Multifamily permit activity during the first half of 2000 totaled 1,187 units, a 20-percent increase. Despite the high level of apartment construction, the rental market remained tight. Apartment vacancy rates of 2 percent or less currently prevail in larger developments, according to surveys by CB Richard Ellis. The bulk of the new apartment units are being built in Folsom, Roseville, and Elk Grove. Many of these new developments are targeting the higher end of the market, with contract rents starting at around $850 for a two-bedroom unit.


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