1. 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

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

4. 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

5. Job Growth/Loss, Thousands U.S. Economy Losing Jobs

7. Consumer Credit as Percent of Disposable Income

8. GDP Growth Weak in 1st Quarter … More of The Same Still to Come 20072008 Blue Chip Consensus, July 2008

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

10. 2007 Real GDP1.6% 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%

11. Arizona & US Move Together (Nonfarm Employment Percent Change 1970 - 2008) Arizona USA

12. (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 The Bottom 3 for Job Growth 46 3 5 9 13 20 States Losing Jobs

13. 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

14. Thousands of Jobs Arizona Construction Jobs Peaked In Summer of 2006 2005200720062008

15. 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

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

17. 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)

18. 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

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

20. 1 7 2 3 5 4 6 US Census Bureau 13 25 8 12 17 9 Arizona Ranks 2 nd in Arizona Ranks 2 nd in Population Growth (Percent Change 2007 vs 2006) 10 11

21. Arizona In-migration From California Still Strong in 2008 200393,194 2004111,397 2005117,000 2006113,791 2007105,402 2008 (Est)102,600 Source: Driver Licenses turned in to AZ Dept of Motor Vehicles

22. 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

23. 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

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

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

26. Source: US Bureau of Labor Statistics and AZ Dept of Commerce Category20002008* Regional Mall13.214.7 Power Centers27.252.7 Neighborhood36.346.5 Strip10.613.6 Total87.3127.3 Metro Phoenix Retail Space Millions Sq. Ft. *8.8 million sq ft now under construction Source: Realty Studies, ASU Poly Campus

27. Source: US Bureau of Labor Statistics and AZ Dept of Commerce Category20002008* Regional Mall13.214.7 Power Centers27.252.7 Neighborhood36.346.5 Strip10.613.6 Total87.3127.3 Metro Phoenix Retail Space Millions Sq. Ft. *8.8 million sq ft now under construction Source: Realty Studies, ASU Poly Campus

28. 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

29. 200720082009 Annual Percent Change Personal Income6.34.6 4.9 Employment1.20.3 1.4 Single Family Units-29-24 1.1 Retail Sales0.50.7 3.1 Population2.82.3 2.4 ARIZONA BLUE CHIP ECONOMIC FORECAST

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

31. 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