For the Sunday Seattle Times, I wrote on whether Seattle's smokin' hot real-estate sector is in a bubble. My answer is, not yet. It seemed like a good time to check in on Phoenix, using gold-standard metrics instead of the local-yoken cheerleading. Here we go:
Prices are definitely up. They're not in 2000s territory and that's a good thing:
However, permits for single-family houses are still way down by historic standards. This is especially true so far (seven years) into a recovery. While good news for the environment and understandable with such a huge inventory from the bubble, it undercuts the prime mover of the metro area's economy:
As a result, construction employment is depressed. Not only has it not returned to 2000s levels, but it is lower than in the late 1990s, when the metro population was far smaller:
An additional problem is that although metro Phoenix prices have begun a recovery, they are well below the 20 big metros in the Case-Schiller Index. They shot above these peers in the bubble years, crashed below them, and are still lagging the recovery:
Some observations:
• Seven years into the expansion, the old growth machine — with championship golf — has not come back. In a normal metropolitan area, real-estate activity is a consequence of a real economy. In Seattle's case, for example, a robust diversified economy juiced up by being a technopolis with Microsoft, Amazon, and tons of startups. It's the go-to "affordable" new outpost for dozens of Bay Area companies, where they can find a talented, educated workforce. In Phoenix, real estate is the economy. Or at least it was. Without a Plan B — all the cluster strategies etc. failed — Phoenix remains exceptionally dependent on low-end spec building. And that's not happening at the rate as in the past.
• Building a high-end, high-quality economy worthy of such a large metropolitan area will take more than branding. It will take more than "selling Arizona's lifestyle." That may attract more of the same. But top companies, capital, and talented people are put off by the pervasive atmosphere of intolerance and the lack of a real urban downtown in Phoenix. Meanwhile, the drag of a large underclass and incomes much lower than peer metros (with the possible exception of San Antonio), along with defunding universities and anti-city policies in the Legislature hurt economic development. Roaring population and housing growth in previous years cloaked some of this. No longer.
• The metro real-estate economy remains vulnerable. Much damage, such as large inventories of bank- or speculator-owned properties in zombie subdivisions, remains. Household formation is way down. Mortgage underwriting standards are stricter than they have been in decades. A global or national shock — or natural end to this aging expansion — will hurt markets such as Phoenix badly. Another little-discussed problem is that retirement will look very different for those born after the mid-1950s. They will have less savings than the retirees that helped power the Arizona economy in the past. Many will prefer real cities or more tolerant states. This has profound consequences for the growth machine.
• The situation is worse in Tucson, where housing permits have been bouncing barely above the bottom since the recession. One has to go back to the late 1980s, when these records began being tracked, to find similar numbers, and Tucson was both smaller and less dependent on real estate then. The workforce still has not reached its pre-bust peaks.
This would be a good time for a Plan B. I won't hold my breath. We're back in Kansas.
well written and researched article.
Phoenix has always been a revolving door, with almost as many people leaving as moving in. You have identified some of the causes of the current trend, particularly education issues. The crackdown on immigration has likely had an effect, too. (At one point the %downturn in real estate was exactly the same as the % decline in illegal immigration).
However, there may be something bigger and more long term in action. One of the “5C’s” of Arizona is climate, but as temperatures become milder elsewhere, the broiling Sunbelt is beginning to look less and less attractive.
The young set in the US no longer want to purchase a residence, but rather RENT.
Rentals are up, and apartment/Condo construction is on every street corner..in the DOWNTOWN area… Moving back to the inner City? along, or close to the Light Rail?
I’d be curious to know where sales tax numbers in Phoenix are since the Great Recession. Real estate is important, but the other indicator to look over is city and regional sales tax income.
Skip makes a good point. I could not find anything on apartment/condo starts in the past 5-10 years. All the apartment rents in the area of my house are well more then my house payment.
Also found this on sales tax collection…
https://www.bizjournals.com/phoenix/news/2015/09/11/arizona-sales-tax-collection-top-100-billion-for.html…
my interpetation is we are back where we were at in 2007 at best.
It’s never a good thing when a metro or state is grouped with Kansas. But then again, the similarities between the economies and political climate in Arizona and Kansas are pretty startling.
Local-Yoken says “Better Buy Now!” Thats all they can say.
Good charts and post, thank you. It’s a long slow climb but at least it’s been a fairly smooth ride.
Regarding home mortgage standards…I can attest that it’s easier to get one now than it was five years ago. The standards are still higher than before the crash, and with good reason, but it is no longer nearly impossible to get banks to loan money. They seem to be getting more back to normal and I know normal people with average credit who are able to get decent sized home loans. That was definitely not the case 5 years ago, when no one was lending much out of abject fear.
I also like that homes here are still relatively affordable. With all our myriad problems, at least “normal”/”median” people in Phoenix can afford to buy a single family home in a big city.
So, that at least, is a positive. 🙂
Not for the Sonoran Desert. What’s left if it.
I was hoping these expert charts meant AZ human population was shrinking?
TEA PARTY MANTRA. WE COME FOR THE EXPERTS FIRST.
Jon, is your Tucson data about single-family permits only? I go to Tucson a few times a year, and have been surprised by all the apartments going up downtown and around the university.
Construction employment is way down, but that could also be reflective of what I hear from my contractor clients — there’s no labor force. They left with SB1070, and from what I hear, it didn’t really return.
It’s anecdotal, but the guy who did remodel work for me 2 years ago bought new equipment and hired two guys to help because he has been so busy. Also claims he can’t find good help.
I really disliked your article. Unfortunately, what you say is accurate. I don’t always like reality, but it has to be faced. Spot on.
Kansas and Arizona in the same sentence, that hurt.
Thread dead. Let’s forge ahead.
Looks like I’m voting for Hillary. Someone let solerie know.
I’m more than willing to roll the dice with a lunatic NY developer.
But I won’t roll the dice with a ” born again evangelical Catholic”
Pence is the deal breaker. That sick American Taliban is anti everything.
He was born several thousand years too late. He’s probably pissed he wasn’t around to slap the shit out of Eve for eating the apple.
Hillary 2016
War, corruption, viva the 1%. Bring it on, she’s my girl.
Nice post Ruben. Sounds like the Indian Wars all over. They weren’t satisfied with taking just your grandmother’s scalp. Now they want to put yours on their wall.
Their = Bankers.
An interesting read I just completed, Infiltrator by Robert (Bob, all undercover guys are Bob) Mazur. There is also a movie but not sure it can give you the books detail on how corrupt almost every bank in the world is. The best part of the book is the Epilogue. Particularly the first three paragraphs. I let Soleri know your not flipping a coin in the voting booth but I’m afraid just making your mark at Hillary’s spot will cause you permanent paralysis of your hands. Welcome back El Indio, Ruben.
Hey, cal. Did you like all the rhyming in my first sentence?
By the way, I’m getting my Marydoyouwanna medical card. Might as well make it legal. I’ll bring the brownies if I ever come down to hell for coffee.
Thats OK Ruben, you can keep your brownies.
I am still a dope virgin.
But come to Hell for coffee.
and hang out with
The good the bad and the ugly