Greater Phoenix Blue Chip
HOUSING EXPECTED TO FLATTEN OUT OR DECLINE
Second Quarter, 2022
We have resurrected the Greater Phoenix Blue Chip in a way that we hope will make it better. The panel, which may grow, now includes some of the best real estate minds in the area. What they are saying about the housing market is not surprising.
The panel expects 2022 to look, in total, about the same as 2021. But, considering what has already occurred, the data implies a minor decline in single family activity in the second half of the year. Given the current dynamics, this is not surprising. On one hand there are extremely strong demographics for housing and a great deal of pent-up demand, a shortage of housing at all price levels, at all income levels and of all types of housing, difficulty getting homes built due to supply chain issues, labor issues, over-regulation and an inability of cities to process entitlements in a timely manner, as well as a shortage of move in ready inventory at new home subdivisions. On the other hand, there is a combination of plummeting rates of affordability due to rapidly rising interest rates and, as of the latest data, continued increases in prices. The only result can be many people being priced out of the for sale market and forced into the for rent market. This includes not only apartments, but single family rentals as well.
The bottom line is that the panel expects 33,000 single family permits to be issued in 2022, followed by a nearly identical number in 2023. The difference in 2023 could be a needed increase in inventory at new home subdivisions and a shortening of the backlog of the time it takes to have a new home delivered. Time will tell; but, the large increases that some expected are now not likely to take place due to market supply constraints and some market demand drop off.
As for the multi-family market, the panel believes that apartments will experience large permit increases in 2022. An estimated 14,400 apartments are expected to be permitted in 2022, followed by another 14,800 next year. Apartment vacancy rates are expected to stay at levels that are very low by historic standards. The consensus calls for about a 4.2% vacancy rate this year and a modestly higher level next year. Again, affordability issues are likely to push a significant number of potential single family buyers into the apartment market. Decreasing affordability could also cause homelessness to rise as well.
In our new format, there will not be specific construction, absorption and vacancy rate numbers for the office, industrial and retail sectors. In general, however, the current outlook for the office market is still less than sanguine. An expected slowdown in the economy, combined with the uncertainty of continued work from home “office” employment, suggests continued high vacancy rates and absorption rates only slightly below or above zero for both 2022 and 2023.
The industrial market, on the other hand, is expected to remain strong in terms of new spec construction in both 2022 and 2023. This is true even though 2023 is likely to be weaker than 2022. Absorption is expected to be as strong as new spec construction. Thus, industrial vacancy rates are expected to remain low in both 2022 and 2023.
Finally, the rebound in retail has been, and is expected to remain, anemic in both 2022 and 2023. Spec construction will be relatively limited. Absorption is expected to exceed spec construction. Thus, vacancy rates could go a bit lower in 2022 and 2023.