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
The data this week was concentrated in the real estate sectors. The for-sale residential market continues to see weakness from the drop in demand fueled by lack of affordability and interest rates that continue to march higher. Weak demand for housing and other interest rate sensitive goods should be expected during this period of Fed tightening. The other expectation is a weakened jobs market, though Arizona is still adding jobs as of the latest employment report.
Greater Phoenix’s office and industrial market was also reported for the third quarter. Office continues to suffer from lack of demand as companies pivoted to more work-from-home. The hybrid model appears to have staying power, which means it will take longer for product to be absorbed. Industrial remains strong, with absorption through three quarters already surpassing all of last year.
U.S. Snapshot:
- Leading indicators dropped 0.4% in September. The continuous decline seen in the last six months signals a possible recession. The Conference Board forecasts 1.5% real GDP growth in 2022 and a slowdown for the first half of 2023.
- Factory production was up in September. The 0.4% increase in manufacturing was above expectations and shows the sector remains on solid footing despite interest rate increases.
- The 30-year mortgage rate rose slightly last week. Last week’s average rate of 6.94% was up from the near 3% rates we saw around this time last year.
- The NAHB/Wells Fargo Housing Market Index (HMI) declined to 38 in October. The index was down over 50% from last year’s level and was at its lowest level since 2012 (excluding the coronavirus pandemic). Higher mortgages were cited as the primary reason for weakened demand.
- According to the U.S. Census, the seasonally adjusted annual rate (SAAR) for total permits rose 1.4% for the month of September but was down 3.2% from a year ago. This was primarily driven by the strength in multifamily permits, which were up 23.8% from a year ago. Single family permits are down 17.3% for the year.
- Existing home sales fell again in September. In NAR’s latest data, all homes sold fell 23.8% to a SAAR of 4.7 million, with single family homes falling 23% to 4.2 million during the same time. Monthly median sales price drops continued for the third month in a row. On an annual basis, prices were still up 8.4% for all properties and 8.1% for single family.
Arizona Snapshot:
- Seasonally adjusted employment data for Arizona was released, and it shows Arizona created 3,700 jobs in September. The job growth was concentrated primarily in Greater Phoenix, which added 6,400 jobs. Greater Tucson lost 5,600 jobs for the month.
- Year-to-date, Arizona has added 112,000 jobs through September. Greater Phoenix was up 4.0% or 86,900 jobs, and Greater Tucson created 12,500 jobs above last year’s level.
- New home closings were the only “bright” note in the RLBrownReports.com September release for Greater Phoenix and Greater Tucson.
- New home sales in Greater Phoenix were only down 1.5% from last year and down 1.6% for the year. Greater Tucson saw an increase of 10.1% in September and is up 6.0% for the year. Over the last year, the median sales price is up 20.5% in Greater Phoenix and 10.8% in Greater Tucson.
- Now onto those not so bright spots of real estate market. Greater Phoenix’s permits saw a 51.1% annual drop bringing the year-to-date level to 19.3% below last year. Resales have responded to the mortgage rate increases and dropped 36.4% from a year ago. Year-to-date, the number of resales are down 17.2%.
- Greater Tucson saw a drop of 52.7% for permits and 31.3% for resales. Year-to-date, permits were down 22.3% and the number of resales has dropped 10.5% from last year.
- Third quarter commercial data heads in different directions for the industrial and office markets in Greater Phoenix, according to CBRE.
- The office market saw an increase in available product, as 712,742 square feet of space was delivered. The market had over 1 million square feet of negative net absorption, pushing vacancy rates to 22.2% (the highest level since 2014). Leasing activity was over 1.5 million square feet, with primary demand for Class A product.
- For the industrial market, third quarter vacancy increased to 3.1% as over 7.3 million square feet was delivered and only 5.9 million square feet was absorbed. Third quarter absorption brought the 2022 total to 21.7 million square feet. The absorption level in 2022 (through three quarters) is already higher than the total experienced in 2021. There is currently 35.2 million square feet of industrial space under construction. The industrial market remains strong.
