The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
By Elliot D. Pollack & Co. | Rose Law Group Reporter
As we mentioned last week, one of the concerns expressed about the Greater Phoenix economy in the Milken Institute’s report, Best Performing Cities 2021: Foundations for Growth and Recovery, is our rising cost of housing. Our moderate cost of living is one of the advantages that has brought numerous businesses to Arizona from more costly locations. However, we have now seen significant increases in both rents and for sale housing prices over the last few years.
In the rental market, according to RealData, average monthly rents have risen by $404 since 2013 or at a compounded average annual rate of 7.0% each year. However, in 2018 and 2019, average rents rose by more than 9.0%. In 2020, the pandemic scaled back rent growth to 4.5%, but vacancies still declined from 7.0% in 2019 to 6.7% at the end of 2020. This is the lowest rate experienced since the end of the Great Recession and is likely attributed to the influx of people moving to the state during the pandemic. The average rent across all bedroom types at $1,182 is still affordable compared to many other regions and particularly to the West Coast metro areas. Unfortunately, the rising cost of rental housing impacts those households that are the least able to bear the increase.
Home prices during 2020 also rose rapidly across the country, partly driven by the lowest mortgage rates in history. According to the Federal Housing Finance Agency (FHFA), prices rose in the U.S. by an average of 10.8% in 2020. Greater Phoenix saw prices rise by 14.8% over the last year, the fourth-highest rate in the country behind Boise, Tacoma, and Salt Lake City. The S&P Corelogic Case-Shiller Index for the 20 largest metro areas also posted a 14.4% increase for Greater Phoenix, the top spot on the index, just ahead of Seattle and San Diego.
The housing market is clearly on fire and demand is outstripping supply. The number of single-family homes available for sale is less than a one-month supply. Normal is anywhere from three to four months. The median resale home price has risen by $60,000 in the last year from $275,000 in January 2020 to $335,000 in January 2021. New home permits in Greater Phoenix totaled 28,695 in 2020, a 20.2% increase over the 23,876 permits issued in 2019.
So while the local economy is performing better than any other in the country at the current time, demand for housing is pushing costs beyond the reach of some, even with low interest rates. Housing cost is something to watch over the next couple of years with the hopes it does not detract from our competitive advantages.
The increase in the number of people vaccinated and the opening up of the economy has started to show in the employment numbers. According to ADP, there was an increase of 517,000 private sector jobs in March. This is especially good news in the leisure and hospitality sector that saw a 169,000 jobs increase. Official preliminary estimates will be released by the Bureau of Labor Statistics next Friday, but this was a good sign for employment.
U.S. manufacturing activity increased to its highest level in 37 years, according to ISM’s Manufacturing PMI. March’s level of 64.7% was up from 60.8% a month ago.
Consumer confidence soared to 109.7 to the highest level in a year in March. The level remains well below the pre-pandemic confidence levels, but it has made a strong recovery since the lows of April 2020.
NAR’s Pending Home Sales Index fell year-over-year for the first time in 8 months. The index is a forward-looking indicator based on contract signing. The home activity remains high with multiple offers, but the lack of inventory remains a concern, especially for entry-level homes.
The latest Case-Shiller index continues to show the rapid growth in housing prices in the Greater Phoenix. In January, Greater Phoenix once again led the way for the 20th consecutive month with a 15.8% annual price increase, followed by Seattle (14.3%) and San Diego (14.2%).