Arizona: After The Housing Boom Arizona: After The Housing Boom ACMA Conference July 24, 2008 Lee McPheters Professor of Economics W. P. Carey School of Business

U.S. Economy U.S. Economy Arizona Economy Arizona Economy Housing Slump Housing Slump Economic Update & Outlook

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

Job Growth/Loss, Thousands 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 Blue Chip Consensus, July 2008

Fiscal Stimulus Package is Adding About 1% to GDP Growth in Quarter 2 & 3

2007 Real GDP1.6% Employment 0.3% Inflation (CPI) 4.2% 30 yr Mortgage 5.5% % 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%

Arizona & US Move Together (Nonfarm Employment Percent Change ) Arizona USA

(Percent Change June 2008 vs June 2007) U. S. Bureau of Labor Statistics Arizona Now Ranks In The Bottom 3 for Job Growth States Losing Jobs

Arizona Jobs:12 Mos. Sector Job Growth/Loss Overall -33,000 Health Care + 10,600 Government +9,400 Leisure/Hospitality +3,400 Trade -3,900 Prof/Biz Services -5,300 Financial -7,300 Construction -33,100

Thousands of Jobs Arizona Construction Jobs Peaked In Summer of

Source: US Bureau of Labor Statistics and AZ Dept of Commerce RegionUnemployment Rate USA 5.5% (June) Arizona4.8% Phoenix Metro4.3% Tucson Metro4.7% Flagstaff Metro4.5% Unemployment Creeps Up

Annual Percent Change In Arizona Employment Forecast 3 Year Slowdown 2007 – 2009? Source: Arizona Blue Chip Forecast

AZ Housing Slump Continues 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 Drivers Low mortgage rates Low mortgage rates Population & job growth Population & job growth Creative home finance Creative home finance Move-up buyers Move-up buyers Boomer second homes Boomer second homes Investors Investors

Every time the Arizona population increases by 2.5 people, a new housing unit is needed.

US Census Bureau Arizona Ranks 2 nd in Arizona Ranks 2 nd in Population Growth (Percent Change 2007 vs 2006) 10 11

Arizona In-migration From California Still Strong in , , , , , (Est)102,600 Source: Driver Licenses turned in to AZ Dept of Motor Vehicles

Percent Families That Can Afford Median Priced Home Affordability up 58% from low point in 2006 Source: Phoenix Metro data from National Assoc. Home Builders Arizona Housing More Affordable

Housing Affordability Effects Outer urban fringe develops Outer urban fringe develops Retailing follows consumers Retailing follows consumers Cross commuting increases Cross commuting increases Infrastructure needs increase Infrastructure needs increase Roadway construction increases Roadway construction increases Population & jobs still growing Population & jobs still growing

Metro Phoenix Construction Single family Permits Greater Phoenix Blue Chip Forecast, 2008 Q1

Economic Outlook, University of Arizona, April 2008 Metro Tucson Construction Residential Permits

Source: US Bureau of Labor Statistics and AZ Dept of Commerce Category * Regional Mall Power Centers Neighborhood Strip Total Metro Phoenix Retail Space Millions Sq. Ft. *8.8 million sq ft now under construction Source: Realty Studies, ASU Poly Campus

Source: US Bureau of Labor Statistics and AZ Dept of Commerce Category * Regional Mall Power Centers Neighborhood Strip Total Metro Phoenix Retail Space Millions Sq. Ft. *8.8 million sq ft now under construction Source: Realty Studies, ASU Poly Campus

Resale prices fall through 2008 Resale prices fall through 2008 New sales, starts up in 2009 New sales, starts up in 2009 Population growth is critical Population growth is critical Tighter lending standards Tighter lending standards Non residential will slow Non residential will slow Construction Outlook Summary Construction Outlook Summary

Annual Percent Change Personal Income Employment Single Family Units Retail Sales Population ARIZONA BLUE CHIP ECONOMIC FORECAST

Annual Percent Growth Source: Arizona Blue Chip Forecast Forecast Arizona Retail Sales Outlook: Recession Level Growth

Consumer in retreat Consumer in retreat Stagnant job growth Stagnant job growth Lots of housing inventory Lots of housing inventory 170,000 new residents? 170,000 new residents? Weak – but not yet bleak Weak – but not yet bleak Arizona Outlook Summary Arizona Outlook Summary