Greater Phoenix Blue Chip
OUTLOOK IMPROVING FOR SINGLE FAMILY, BUT NOT FOR MULTIFAMILY
Fourth Quarter, 2023
Elliott Pollack
According to the Greater Phoenix Blue Chip Housing Panel, the outlook for single family housing is improving. The 2023 numbers indicated weakness in terms of single family permits in the first half of the year. The second half of the year showed significant improvement because the comparisons to 2022 were easy due to the weakness in the second half of 2022. Overall, single family permits in 2023 will be down very slightly from 2022 levels. In early 2024, comparisons to 2023 should also be easy. They will become more difficult in late spring 2024. This, combined with an expectation of modestly declining mortgage rates in 2024, should allow permits in 2024 to increase by nearly 12%. Modest gains are also expected in 2025.
What makes single family difficult to forecast is that mortgage rates are notoriously difficult to project. Yet, despite the low level of affordability, even by historic standards, new home sales are expected to maintain a larger share of total housing sales than they have for several years. This is because new homebuilders can offer incentives (e.g., to buy down mortgage rates) while existing home sellers have a difficult time doing this on an individual basis. While 2024 could still end up being a slow growth or recession year for the overall economy, unless something that is now considered a low probability (black swan event) occurs, the outlook remains positive.
As for multifamily, the pipeline of units under construction is at very high levels. This is because they were started in 2020-2022 when the economy was stronger and interest rates much lower. And while it is true that low levels of single family affordability will push more households into apartments, absorptions are likely to fall behind new supply this year. The good news for renters is that this dynamic should keep rents from escalating much, if at all. The glut of new supply outpacing absorptions expected in 2024-2026 will keep rents in check. A slowdown in new apartment permits is expected in 2024 and beyond, manifesting itself in lower deliveries of products from 2027 onwards. This is true even more today as the entitlement process for new building continues to lengthen. Look for vacancy rates to increase over the next couple of years, followed by declines in vacancy rates later in the decade.
GREATER PHOENIX BLUE CHIP: RESIDENTIAL
| 2023 | 2024 | 2025 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Single Family Permits | Multi-Family Permits | Apt. Vacancy (Q4 %) | Apt. Absorp. | Single Family Permits | Multi-Family Permits | Apt. Vacancy (Q4 %) | Apt. Absorp. | Single Family Permits | Multi-Family Permits | Apt. Vacancy (Q4 %) | Apt. Absorp. | |||
| CBRE | 21,708 | 11,647 | 7.1% | 13,215 | 23,000 | 12,320 | 6.0% | 15,487 | 25,000 | 14,060 | 6.0% | 8,936 | ||
| Elliott D. Pollack & Co. | 21,250 | 18,000 | 8.0% | 12,000 | 25,000 | 9,000 | 7.5% | 14,000 | 26,000 | 10,000 | 7.5% | 12,000 | ||
| Griffin Consulting | 20,250 | 14,250 | 5.8% | 12,750 | 26,000 | 12,400 | 5.3% | 14,000 | 28,000 | 13,000 | 5.1% | 14,000 | ||
| Land Advisors | 21,000 | 19,000 | 7.7% | 14,000 | 21,500 | 7,500 | 7.0% | 17,000 | 22,500 | 9,000 | 5.5% | 18,500 | ||
| Nathan & Associates | 19,500 | N/A | N/A | N/A | 23,000 | N/A | N/A | N/A | 24,000 | N/A | N/A | N/A | ||
| South West Growth Partners | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||
| Univ. of Arizona Eller College | 24,804 | 18,340 | N/A | N/A | 25,124 | 11,504 | N/A | N/A | 27,032 | 11,128 | N/A | N/A | ||
| CONSENSUS | 21,419 | 16,247 | 7.2% | 12,991 | 23,937 | 10,545 | 6.5% | 15,122 | 25,422 | 11,438 | 6.0% | 13,359 | ||
| ACTUALS FROM PHOENIX HOUSING MARKET LETTER & CBRE | ||||
|---|---|---|---|---|
| Single Family Permits | Multi-Family Permits | Apt. Vacancy (Q4 %) | Apt. Absorp. | |
| 2022 Actuals | 22,222 | 16,377 | 6.5% | 4,700 |
| 2021 Actuals | 31,069 | 21,592 | 4.4% | 12,300 |