|
2010 Arizona and National Market Outlooks
NAR Digs into the Residential Real Estate Market Data By Jed Smith, NAR Managing Director - Quantitive Research AZR January 2010 |
|
National Overview With the end of the Great Recession of 2008, a sluggish economic recovery appears to have started in the third quarter of 2009. In addition to lower levels of Gross Domestic Product, the recession left us with a weakened banking system; high levels of unemployment; major government deficits; and a housing market with lower prices, lower sales and foreclosures. Table 1 outlines at the national level the recession and projected recovery for a few key economic variables. The recession seems to have been caused by two waves of economic distress that occurred simultaneously. First, the economy was at the end of an expansion and was then hit by severe price speculation in the oil markets—driving the price of gasoline through the ceiling and throwing the already precarious consumer sector into a major slow down. Almost simultaneously, the shadow banking system (including such firms as AIG, Lehman and GE) and the regulated banks (including Citibank, Wachovia and many others) faced liquidity and solvency crises due to poor risk management, over leveraging and defaulting investments. The result was the near collapse of the entire financial system—producing a tsunami of economic problems and recession, and resulting in the need for the TARP loan program to provide liquidity to the banks in October 2009. Normally the economy emerges from a recession with a growth spurt and increased consumer and business confidence. This time the recovery is different, given the severity of previous problems across broad sectors of the economy. Economists are cautiously optimistic that the current economic stimulus plan coupled with efforts to assist the housing markets will help to expand the currently weak recovery. However, unemployment, which lags the economy by almost a year, is projected to be a problem through much of 2010. There are several major concerns impacting the current economic outlook: Arizona Overview
Similarly to national experience, Arizona has experienced declining retail sales, employment and median home prices. Over the past several decades, Arizona has been one of the most rapidly growing states, and growth is expected to continue in the long run. Arizona has, however, been hit hard by decreases in non-farm employment in the recent recession (for example, in construction, data processing, hosting and related computer services among others). Current projections indicate that employment losses will continue into 2010. Housing sales, inventories of unsold property and, to a lesser degree, prices are starting to stabilize. On the negative side, a significant number of sales continue to involve distressed properties. For the immediate future, economic activity in Arizona is projected to be slower than normal as a recovery begins. Information from the Brookings Institution’s Metropolitan Policy Program puts the major metropolitan areas of Arizona in the second weakest group of 100 major metropolitan areas, as measured in terms of employment levels, gross metropolitan product and housing. Major industrial products manufactured by companies located in the metropolitan area include aircraft parts, electronic equipment, agricultural chemicals, radios, air-conditioning equipment, leather goods and Native American crafts. However, projections indicate that the Phoenix and Tucson areas should expect a longer recovery period than other major areas around the country. Arizona’s Residential Real Estate Market The Arizona real estate market has experienced some challenging times: Arizona Outlook
The national economic forecast indicates that the economy is recovering. Arizona benefits from tourism, influxes of retirees and a number of high-tech industries coupled with mining and agriculture. The economy is relatively diversified but has been badly hit by declines in the real estate markets, declines which are somewhat greater than the U.S. economy overall. In recent years, growth in the Arizona economy has significantly exceeded national growth, but during the recession, the Arizona economy appears to have had a greater decline. Based on the underlying trends summarized in the graph, one would expect the Arizona economic recovery to track the overall U.S. recovery. Yet given the severity of the recession in Arizona, that recovery will probably be slower than the projected national recovery. National existing home sales are expected to increase at an 11% rate of growth for 2010, compared to overall performance in 2009. Nationally, prices are expected to be up by 3.6%. In the case of Arizona, residential price increases may be somewhat less due to heavy levels of distressed property. Residential sales have already shown some recovery in numbers, and this recovery may continue but will probably be heavily influenced by distressed properties and a somewhat slower than usual economy. |
