Pollack: Building momentum

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co.

U.S. data points to a continued recovery expected to overcome the recent setbacks caused by the delta variant and prolonged inflation, with positive news from the leading economic indicators index. The Federal Reserve has also signaled that it was ready to begin reducing its pandemic stimulus programs soon, which is another sign that the recovery has staying power. Nationally, home sales declined but prices continue to rise. Construction also posted a positive result for the month, with multi-family starts boosting total permit counts.

Here in Greater Phoenix and Greater Tucson, permits and closings of new single family homes are down for the second month in a row according to RLBrownReports.com. While year-to-date permit activity in Greater Phoenix is still up 25% from last year, it is down 10% in August compared to the same month last year and closings are down 6%. Builders are reporting continued challenges procuring materials and labor and are electing to slow their permit and closing pipeline. Tucson is seeing about the same trend (permits up 28% year-to-date but down 14% for the month).

U.S. Snapshot:

  • The Leading Economic Index increased 0.9% in August following an increase of 0.8% in July. Despite fears of the Delta variant and inflation affecting the labor market and the consumer spending outlook, expectations remain positive with expected GDP growth of nearly 6% in 2021 and above 4% in 2022.
  • Existing home sales declined 2.0% for the month and 1.5% for the year. Single family sales had a similar drop with a 1.9% decline for the month and 2.8% from a year ago. Demand remains strong despite prices increasing nearly 15% to $356,700. Potential buyers have become more measured about their financial limits and are waiting for supply to increase.
  • Starts and permits increased on the strength of multi-family in August. Starts were at a seasonally adjusted annual rate of 1,615,000, up 3.9% for the month, and single family was down 2.8% for the same period. Total permits were up 6.0% to a SAAR 1,728,000, with single-family permits increasing 0.6% for the month. Demand for multi-family has been robust as vacancy has declined despite the increase seen in rents.

Arizona Snapshot:

  • According to the latest data from RLBrownReports.com, permitting activity has slowed in both Greater Phoenix and Greater Tucson. The shortages in materials have made finishing homes already started very difficult, and it’s forcing builders to limit sales activity and permitting.
  • Permit activity in the second half of 2021 and the first half of 2020 totaled nearly 34,000 in Greater Phoenix. The second half of 2021 has not started with the same positive momentum with back-to-back annual declines in July and August. The permit level in August was the lowest total for the year. However, year-to-date, permits are still up almost 25%.
  • Supply shortages are also affecting builders in Greater Tucson. Permits were down 14.1% from a year ago for the month but remain up 28% on a year-to-date basis.
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September 2021