The Pacific regional economy continued to grow at a rapid pace in the fourth quarter, adding 583,000 new jobs in the 12 months ending November 2000. Nevada and Arizona grew at rates of 4.5 and 3.7 percent, respectively, during the period. The economy in California added 445,000 new jobs, a 3-percent rise, as high-technology exports increased. Hiring began of the 16,500 employees needed for the new $1.4 billion Disney theme park in Anaheim, Orange County, scheduled to open in early 2001. The Hawaii economy continued to improve with the addition of 10,100 new jobs—a 2-percent increase. Labor markets throughout the region tightened further, with the regional unemployment rate dropping to 4.6 percent. The unemployment rate in the Phoenix, Tucson, Reno, and San Francisco Bay areas remained under 3 percent. California’s growth projections for 2001 are being reduced as a result of sharply higher energy costs and severe power shortages.

Regionally, single-family homebuilding closed out 2000 at robust levels, with permits issued for more than 181,400 homes, a 1-percent gain over 1999. The strong California economy supported permits for 103,693 new homes, a 4-percent gain and the fifth consecutive year of increased activity. Activity in the San Francisco Bay and Los Angeles-Orange County-San Bernardino areas was off less than 3 percent from a very strong 1999. However, single-family activity in the more affordable Fresno, Modesto, Sacramento-Yolo, and Stockton-Lodi areas was up 12, 34, 23, and 27 percent, respectively.

Phoenix’s 9 consecutive years of increasing homebuilding ended in 2000, as building permits for the year of 34,089 were off 11 percent. New home sales in Phoenix were also down 6 percent. Las Vegas home builders pulled 23,181 permits for the year, a 6-percent gain. In Hawaii, building permit activity increased 31 percent from a low base.

Resales in the Pacific region in 2000 were down less than 1 percent to 934,900 homes. The California existing sales market approached year’s end on a high note. NAR reported annual sales of 690,200, off less than 3 percent from 1999’s record pace. The median sales price was up more than 8 percent in the Los Angeles, Orange County, and Riverside-San Bernardino markets. NAR reported a median sales price of $318,000 in Orange County for the year. The California Association of REALTORS^® estimates that sales in 2001 will be approximately 3 percent lower due to declining affordability and tighter inventories. In Las Vegas, resales were up 12 percent through November, heading for another record year. NAR reported a median sales price of $137,400 for 2000, up 5 percent. In Phoenix, existing sales were off 4 percent from the 1999 peak, but prices were up 6 percent.

Multifamily activity in the Pacific region was up 7 percent for the year to 59,883 units. California accounted for 40,220 units, a 15-percent increase in response to tight conditions. San Francisco Bay area remained tight with a rental vacancy rate reported at 1.3 percent as of the third quarter, based on RealFacts’ survey of high-amenity apartment developments. This is half the rate reported a year earlier. Current levels of rental production are insufficient to meet the growing demand. In the San Francisco Bay area rents in some submarkets were increasing by more than 7 percent annually. The rental market in the Sacramento area also remains very tight. A CB Richard Ellis survey of the larger apartment developments reported a vacancy rate of 1.7 percent. Conditions were highly competitive in the Fresno rental market with a rental vacancy rate of greater than 8 percent.

Southern California’s rental markets are either balanced or tight, with robust job and household growth putting pressure on both rents and vacancy rates in most markets. Multifamily building permit activity in 2000 activity rose 33 percent in the Los Angeles-Orange County-San Bernardino area, but the volume is insufficient to meet demand in many submarkets. Overall the market in Los Angeles County is balanced, but the rental vacancy rate continued to decline in 2000 to approximately 5 percent. Both the San Diego and Orange County markets remained tight, with rental vacancy rates of 4 and 3.5 percent, respectively. The rental market in both Ventura County and southern Santa Barbara County are tight, with vacancy rates of less than 4 percent. The highest rate in Southern California, 8 percent, was recorded in the Riverside-San Bernardino area. However, the rapid growth in new households is absorbing the vacant units.

The rental market in Las Vegas is very competitive. The apartment vacancy rate stayed in the 6- to 7-percent range throughout 2000, and higher rates are reported in some submarkets with large apartment pipelines. Rents are flat, and concessions are widespread in a number of areas. The 27-percent drop in multifamily building permit activity in 2000 is expected to keep the market relatively stable. In Phoenix, the rental market is balanced with a 7-percent vacancy rate, approximately 1 percent higher than in 1999. The rate is as high as 9 percent, and conditions are competitive in the more active submarkets. Multifamily permit activity totaled 10,981 units, a 15-percent increase over 1999.

Spotlight on Tucson, Arizona

The Tucson metropolitan area added 18,700 nonagri-cultural jobs in the 12 months ending November 2000, a 5.7-percent increase and the highest rate of growth in the Nation for much of 2000. The unemployment rate as of November was 2.6 percent, the lowest in the past 30 years. Rate of employment growth in the Tucson area increased very rapidly in the past 2 years primarily because Raytheon Missile Systems consolidated its production operations in Tucson, adding more than 2,000 high-paying jobs. Raytheon is the area’s largest private employer and has 10,000 employees. Other local high-technology firms include Bombardier, IBM, Honeywell, Texas Instruments, and Intuit. With Raytheon’s hiring trailing off, job growth is expected to slow in 2001 to a still very strong 3.5 to 4 percent, according to local sources.

The University of Arizona is a key source of scientific and engineering personnel for the area’s high-technology firms in the Tucson area. The University of Arizona has more than 34,000 students, employs 10,850 faculty and staff, and has a $500 million annual payroll. The university recently began a 23-building, $402 million capital improvement program to be completed over the next several years.

Tucson’s mild climate and below-average cost of living have made the area a destination market for retirees. The expanding employment opportunities and influx of retirees led to rapid population growth during the past 10 years through both domestic and international in-migration. The University of Arizona estimated that the county was home to 866,000 people as of July 2000, a 200,000-person increase (30 percent) since the 1990 census. The university estimates that the population will increase by 100,000 people by 2005.

The past 3 years have been the best of the past 11 years in the Tucson new home market. Single-family building permit activity averaged 6,100 homes annually. In 2000, the 6,200 new homes sold was only slightly above 1999’s record, according to the Tucson Housing Market Letter. After the defeat in November of the statewide Proposition 202 growth control measure, a number of local subdivisions that had been on hold began to move forward. Local sources expect the market in 2001 will be down slightly but remain very strong. The drop is attributed to planning limitations on new construction and increased lot and production costs. Currently, move-up sales priced from $120,000 to $200,000 account for more than half of new home sales. Retirement/second home sales to the 55-plus age group comprise 30 percent of the market. Existing sales in the Tucson area were also robust in 2000. The Tucson Association of REALTORS^® reported 11,077 resales in 2000, off just 1.5 percent from 1999’s record. The median sales price increased 2.5 percent for 2000 to $120,500.

The Tucson rental market is currently slightly soft. From 1994 through 1999, multifamily building permit activity averaged more than 1,400 units annually. The rental vacancy rate has been close to 8 percent for several years and higher than 10 percent in some of the active submarkets. Rent increases have been fairly modest, increasing less than 3 percent in 2000, and absorption has slowed. Because of the large number of new units in the pipeline and competitive conditions, multifamily building permit activity declined significantly in 2000 to 682 units. With the continued economic growth and the decrease in production, the rental market is expected to become more balanced in 2001.