arizona: after the housing boom arizona: after the housing boom acma conference july 24, 2008 lee...
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Arizona: AfterThe Housing Boom
Arizona: AfterThe Housing Boom
ACMA ConferenceJuly 24, 2008
Lee McPhetersProfessor of Economics
W. P. Carey School of Business
• U.S. EconomyU.S. Economy• Arizona EconomyArizona Economy• Housing Slump Housing Slump
Economic Update & Economic Update & OutlookOutlook
What to Worry About: 2008
Worry Meter
• Energy/Food Prices Up• Job Growth Down• Unemployment Up• Home Values Down• Stock Market Down• Debt Levels Up
6041
-83-62 -62-67
-88-76
Nov. Dec. Jan. Feb. March April May June
Job Growth/Loss, ThousandsJob Growth/Loss, Thousands U.S. Economy Losing Jobs U.S. Economy Losing Jobs
Consumer Credit as Percent of Disposable Income
GDP Growth Weak in 1st Quarter… More of The Same Still to Come
2007 2008Blue Chip Consensus, July 2008
Fiscal StimulusFiscal Stimulus
Package isPackage is
Adding AboutAdding About
1% to GDP1% to GDP
Growth inGrowth in
Quarter 2 & 3Quarter 2 & 3
2007Real GDP 1.6%
Employment 0.3%
Inflation (CPI) 4.2%
30 yr Mortgage 5.5%
2009 2008
2.2%1.1%
2.9%
6.3%
Outlook for the U.S. Economy
Forecast subject to change as new information is available
1.7%
0.6%
2.9%
5.8%
-6
-4
-2
0
2
4
6
8
10
12
14
1970 1974 1978 1982 1986 1990 1995 1999 2003 2007
Arizona & US Move Together
(Nonfarm Employment Percent Change 1970 - 2008)
ArizonaArizona
USAUSA
(Percent Change June 2008 vs June 2007)
2
41
48
1
40 6
7
U. S. Bureau of Labor Statistics
10
11
27
Arizona Now Ranks In TheBottom 3 for Job Growth
46
3
5
9
13
20 StatesLosing Jobs
Arizona Jobs:12 Mos.Sector Job Growth/LossOverall -33,000Health Care + 10,600Government +9,400Leisure/Hospitality +3,400Trade -3,900Prof/Biz Services -5,300Financial -7,300Construction -33,100
190
200
210
220
230
240
250
260
JAN JUL JAN JUL JAN JULY JAN JULY
Thousands of Jobs
Arizona Construction JobsPeaked In Summer of 2006
2005 20072006 2008
Source: US Bureau of Labor Statistics and AZ Dept of Commerce
Region Unemployment Rate
USA 5.5% (June)
Arizona 4.8%
Phoenix Metro 4.3%
Tucson Metro 4.7%
Flagstaff Metro 4.5%
Unemployment Creeps Up
Annual Percent Change In Arizona EmploymentAnnual Percent Change In Arizona Employment
ForecastForecast
3 Year Slowdown 2007 – 2009?3 Year Slowdown 2007 – 2009?
Source: Arizona Blue Chip Forecast
AZ Housing Slump AZ Housing Slump ContinuesContinues
Permits - 30%Resales - 31%Prices (Phx) - 4.1%Source: National Assoc Realtors; US Census
Single Family Q1 08 Permits - 57%Resales - 31%Resale Price - 15%Source: US Census, NAR (vs. Q1 07)
Housing Market DriversHousing Market Drivers
• Low mortgage ratesLow mortgage rates• Population & job growthPopulation & job growth• Creative home financeCreative home finance• Move-up buyersMove-up buyers• Boomer second homesBoomer second homes• Investors Investors
Every time the Arizona population increasesby 2.5 people, a new housing unit is needed.
1
7
2
3
5
4
6
US Census BureauUS Census Bureau
13
25 8
1217
9
Arizona Ranks 2Arizona Ranks 2ndnd in inPopulation GrowthPopulation Growth
(Percent Change 2007 vs 2006)(Percent Change 2007 vs 2006)
10
11
Arizona In-migration From California Still Strong in 2008
2003 93,1942004 111,3972005 117,000 2006 113,7912007 105,402
2008 (Est) 102,600 Source: Driver Licenses turned in to AZ Dept of Motor Vehicles
Percent Families That Can Afford Median Priced Home
Affordabilityup 58%from lowpoint in2006
Source: Phoenix Metro data from National Assoc. Home Builders
Arizona Housing More Affordable
Housing Affordability EffectsHousing Affordability Effects
• Outer urban fringe developsOuter urban fringe develops• Retailing follows consumersRetailing follows consumers• Cross commuting increasesCross commuting increases• Infrastructure needs increaseInfrastructure needs increase• Roadway construction increasesRoadway construction increases• Population & jobs still growingPopulation & jobs still growing
Metro Phoenix Construction Single family Permits
Greater Phoenix Blue Chip Forecast, 2008 Q1
42,423
31,172
17,62222,278
2006 2007 2008 2009
Economic Outlook, University of Arizona, April 2008
Metro Tucson Construction Residential Permits
Source: US Bureau of Labor Statistics and AZ Dept of Commerce
Category 2000 2008*
Regional Mall 13.2 14.7
Power Centers 27.2 52.7
Neighborhood 36.3 46.5
Strip 10.6 13.6
Total 87.3 127.3
Metro Phoenix Retail Space Millions Sq. Ft.
*8.8 million sq ft now under constructionSource: Realty Studies, ASU Poly Campus
Source: US Bureau of Labor Statistics and AZ Dept of Commerce
Category 2000 2008*
Regional Mall 13.2 14.7
Power Centers 27.2 52.7
Neighborhood 36.3 46.5
Strip 10.6 13.6
Total 87.3 127.3
Metro Phoenix Retail Space Millions Sq. Ft.
*8.8 million sq ft now under constructionSource: Realty Studies, ASU Poly Campus
• Resale prices fall through 2008Resale prices fall through 2008
• New sales, starts up in 2009New sales, starts up in 2009
• Population growth is criticalPopulation growth is critical
• Tighter lending standardsTighter lending standards
• Non residential will slowNon residential will slow
Construction Outlook SummaryConstruction Outlook Summary
2007 2008 2009Annual Percent Change
Personal Income 6.3 4.6 4.9
Employment 1.2 0.3 1.4
Single Family Units -29 -24 1.1
Retail Sales 0.5 0.7 3.1
Population 2.8 2.3 2.4
ARIZONABLUE CHIP ECONOMIC FORECAST
1.3
5.3
9.0
13.2
7.9
0.5 0.7
3.1
2002 2003 2004 2005 2006 2007 2008 2008
Annual Percent Growth
Source: Arizona Blue Chip Forecast Forecast
Arizona Retail Sales Outlook:Recession Level Growth
• Consumer in retreatConsumer in retreat
• Stagnant job growthStagnant job growth
• Lots of housing inventoryLots of housing inventory
• 170,000 new residents?170,000 new residents?
• Weak – but not yet bleakWeak – but not yet bleak
Arizona Outlook SummaryArizona Outlook Summary