spring time for housing - arizona state university · greater phoenix employment has increased...

Elliott D. Pollack & Company

Spring Time for Housing

Arizona State University

December 2nd

, 2015

Presented By:

Elliott D. Pollack

CEO, Elliott D. Pollack & Company

Elliott D. Pollack & Company 1

IN PHOENIX


The World has Changed…

Pre-2007 Post-2007


Employment GrowthFrom Bottom of Recession (Start of Recovery)

Greater Phoenix Employment, Seasonally AdjustedSource: BLS

4

Recession

Emp.

Trough

61 mos.

Later % Growth

1974-1975 Dec-74 Jan-80 42.3%

1981-1982 Sep-82 Oct-97 41.5%

1991 Aug-91 Sep-96 32.3%

2001 Dec-01 Jan-07 20.4%

2007-2009 Sep-10 Oct-15 13.9%


Population Growth after RecessionsGreater Phoenix

Source: ADOA

5

Start of

Recovery Population

Population

9 years later % Growth

1975 1,377,700 1,606,300 16.6%

1981 1,658,988 2,013,320 21.4%

1991 2,301,825 2,784,725 21.0%

2001 3,360,062 3,968,805 18.1%

2009 4,087,390 4,404,888 5.2%


Year Rank # MSA’s

2004 3 25

2005 1 26

2006 1 27

2007 10 29

2008 25 29

2009 23 24

2010 23 23

2011 14 25

2012 11 28

2013 9 28

2014 16 31

2015* 14 32

Year Rank # MSA’s

1992 4 19

1993 2 19

1994 1 19

1995 1 20

1996 1 21

1997 2 22

1998 1 23

1999 3 24

2000 7 25

2001 7 26

2002 5 25

2003 3 25

Phoenix-Mesa-Scottsdale Employment Growth(Ranking among all metro areas greater than 1,000,000)

Source: Arizona State University, U.S. Bureau of Labor Statistics

*YTD October 2015 vs. YTD October 2014 6


Greater Phoenix–

Greater Phoenix has had a significant

recovery in both absolute and relative

terms.

It is only when we compare ourselves to

previous Arizona recoveries that we look so

bad.

7


Greater Phoenix Unemployment Rate

1990 – 2015* Source: Bureau of Economic Analysis

Recession Periods

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

*Data through September 2015. 8


Since the Recovery

Greater Phoenix employment has

increased 13.8%.

By Comparison, for the first 61

months of the previous two

recoveries, Greater Phoenix grew

32.3% and 20.4%, respectively.

Source: Bureau of Labor Statistics

Data through October 2015 9


Since the Recovery the

Greater Phoenix population has

increased by 5.2%.

By Comparison, for the first 5 years

of the previous two recoveries,

Greater Phoenix population

increased by 21.0% and 18.1%,

respectively.

Source: Arizona Department of

Administration

10


Less need for migrants

(international and national)

chasing jobs.

12


Fewer people mean fewer houses

& less commercial construction.

13



Pre-2007 Post-2007


MEDIOCRE

Unexceptional

Run-of-the-mill

Second rate

Commonplace

Middling

Sub-par



Pre-2007 Post-2007


Single Family Permits

Greater Phoenix 1976–2017*Source: RL Brown & Elliott D. Pollack & company

27.3%

101.1%

29.5%

-34.7%-39.0%

-7.3%

9.2%

67.3%

-6.8%

24.7%

2.8%

-22.7%

-15.9%-20.5%

-11.6%

29.1%34.2%

23.2%21.1%

4.1%3.7%

7.1%13.5%

-1.9%-1.7%

4.2%7.6%

22.6%27.6%

4.4%

-33.3%-26.5%

-59.6%

-36.2%

-15.0%

-0.4%

70.7%

10.2%

-15.2%

46.0%

20.0%18.0%

-75%

-55%

-35%

-15%

5%

25%

45%

65%

85%

105%

125%

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

# Permits

(000)

*2015, 2016 and 2017 forecast is from Elliott D. Pollack & Company

as of November 2015. 17


Multi-Family Year-End Vacancy Rates

Greater Phoenix County 1975–2017*Source: ASU Realty Studies / Berkadia**

6.2%

4.1%3.3%

2.8%

3.9%

6.1%

4.4%

6.1%

6.9%

7.7%

10.1%10.6%

13.0%14.1%

13.4%

10.0%9.5%

8.0%

4.0%3.8%4.5%4.5%

4.8%

5.1%5.9%

6.8%

8.2%

9.4%9.6%

7.9%

6.8%

7.8%

10.2%

12.5%

13.4%

10.8%

7.5%

6.3%

6.6%

6.0%

6.3%6.2%

6.1%

0%

3%

6%

9%

12%

15%

18%

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*2015, 2016 & 2017 are forecasts from Elliott D. Pollack & Co.

**Data prior to 2005 is from ASU

Recession Periods

18


Apartments

Births 26 year lag

1955-2038Source: U.S. Census Bureau

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Baby Boomers Gen X Millennials

2015

19



Pre-2007 Post-2007

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http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjXprWskLbJAhXEMIgKHfGLCHIQjRwIBw&url=http://www.ovimagazine.com/art/10194&bvm=bv.108194040,d.cGU&psig=AFQjCNH4cJh1q0i2Fd81c8NJeMYMk42JYg&ust=1448903457724338


JUST ALMOST DO IT.


What has changed?

22


Why has growth been slow?

(1) Recovery from the financial crisis of 2007/2008

(2) Lack of accelerator to income-

--Women entering workforce in 70s and 80s

--Absence of a quadrupling stock market in the 90s

--People not using their house as a credit card (‘96-’05)

(3) Underlying demographics

(4) Increased regulation and high corporate taxes

23


56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

Labor Force Participation Rate (16 years and over)1950 – 2015*

Source: Bureau of Labor StatisticsRecession Periods

*Seasonally adjusted data through October 2015.

24


S&P 5001980-2015*

Source: Standard & Poor's (S&P); Moody's Analytics (ECCA) Converted

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

*Data through November 23, 2015

Recession Periods

25


Mortgage Equity Withdrawal

as a share of Disposable Income

U.S.: 1971 – 2015* Source: Bureau of Economic Analysis

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Recession Periods

*Data through second quarter 2015

26


U.S. Population by Age

Net Change 2015 – 2020Source: U.S. Census Bureau

-2,500

-1,000

500

2,000

3,500

757 884

108

-134

-929

1,014

1,3161,591

-391-744

-1,799

-24

1,9672,016

3,286

1,908

678

64

-429

(000s)

27


Distribution of Movers in U.S. by Type*


*Excludes movers in the same county

7.9 7.9 7.9 8.2 7.9 8.0 8.0 7.9 8.4 8.87.6 8.1 7.7 7.8 7.8 8.0 7.4

6.3 6.4 6.2 5.96.8 7.0 6.4

7.1 7.1 6.9 6.75.7

6.5 6.4 6.4

7.58.4

7.87.8

7.6 7.3 7.45.7

4.9

4.7 4.74.3 4.8

5.1 4.84.7

1.4 1.3 1.4 1.2

0.8

1.4 1.3 1.2

1.4

1.7

1.81.6

1.3 1.31.9

1.3

1.2

1.1 1.11.0 1.1

1.2 1.01.1

0.0

5.0

10.0

15.0

20.0

Diffeferent county, same state Different county, different state From Abroad

11.512.2

18.9

Movers

(in

mill

ions)

28

17.2


For the U.S. as a Whole

• 2002 – 2006

• 2010 – 2014

29

Source: U.S. Census Bureau

Note: Does not include in-state movers

Total Movers down 25.6%

• Movers from abroad down (26%)

• Movers from other states down (34%)

• Movers from other counties

in the state, down (18%)


Arizona Capture Rate(from abroad and between states)

• 2002 – 2006 = 3.7%

• 2010 – 2014 = 3.3%

30Note: Does not include in-state movers


SB 1070


There is Good News.

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http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwih-OHZuqfJAhXKpYgKHZMBD4QQjRwIBw&url=http://arizonasports.com/story/463757/fork-report-asu-wins-the-territorial-cup-beats-arizona-52-37/&bvm=bv.108194040,d.cGU&psig=AFQjCNEGml5t4MSqXdJVdST6UCvsa6w79Q&ust=1448399473067087


Single-family

33


Greater Phoenix

Single Family PermitsSource: R.L. Brown

Year Permits % chg

2004 60,872 27.6%

2005 63,570 4.4%

2006 42,423 -33.3%

2007 31,172 -26.5%

2008 12,582 -59.6%

2009 7,862 -37.5%

2010 6,822 -13.2%

2011 6,794 -0.4%

2012 11,615 71.0%

2013 12,785 10.1%

2014 10,840 -15.2%

2015* 13,547 46.4%*Data through October 2015. 35


Greater Phoenix Population

Annual Percent Change 1975–2016*Source: AZ Dept. of Administration, EDPCo

2.7%

2.1%

3.7%

4.2%

4.7%

3.9%

3.3%

3.0%3.1%

4.3%

5.1%

4.2%

4.4%

2.9%

2.5%

1.3%

2.4%

2.8%

3.5%

4.3%4.6%

4.2%4.2%

3.8%

4.3% 4.3%

2.6%2.7%

3.1%

3.6%

3.8%3.7%

3.0%

1.9%

0.5%0.3%

0.6%

1.1%

1.5%1.5%1.6%

1.8%

0%

2%

4%

6%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Recession Periods

*2015 & 2016 forecasts from Elliott D. Pollack & Co. as of July 2015.

Pre-2008 Avg. 3.5%

36


Arizona Domestic Migration Ranking2000-2014


2 2 2 2 2 2 3 4 3

11

5

11

3

6

3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

37


Arizona International Migration Ranking2000-2014


108 8 7

97 8 7 8 8

18 17 17 17 17

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

38

SB 1070 passed in 2010

Elliott D. Pollack & Company 38a


Pre-2007 Post-2007


What is keeping potential buyers out of the

housing market?

Parade of horribles:(1) Negative Equity

(2) Foreclosures

(3) Short Sales

(4) Millennials

(5) Student Loans

(6) FHA Loan Limit

(7) Tougher Loan Standards

39


U.S. and Greater Phoenix

Negative Equity Share

2010–2015 Source: CoreLogic

24.9%22.5% 22.3%

14.9%

10.9%8.7%

41.9%

25.6%

19.5%

15.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2

U.S. Greater Phoenix

Greater Phoenix data prior to 2012 Q2 not available. 40


U.S. Foreclosure Lag

2002–2022 Source: CoreLogic

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

CompletedForeclosures

7-Year Lag (Fannie/Freddie)

Sept. 2015

Recession Periods

41


Greater Phoenix Short Sales

January 2011 – September 2015Source: ASU

1,936

195

-

500

1,000

1,500

2,000

2,500

42


Millennials/Living at Home

• There are approximately 1.5 million more 25-34 year olds

living with their parents than 2002.

43


When you delay marriage you

delay children. That delays

housing. That delays demand for

housing “stuff”.

44


Total Student Loan Debt Has Tripled!

45


Total Student Loan Balances

Billions of DollarsSource: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Year TOTAL

2004 $347.1

2005 $392.8

2006 $478.8

2007 $541.3

2008 $633.3

2009 $714.4

2010 $803.5

2011 $866.3

2012 $959.9

2013 $1,071.0

2014 $1,155.5

45a


Expenses that Delayed Saving for a Down Payment or

Home Purchase - 2014

By AgeSource: National Association of Realtors 2014

All Buyers 34 and

younger

34 to 49 50 to 59 60 to 68 69 to 89

Student Loans 46% 54% 23% 11% 7% 1%

Credit Card Debt 50% 35% 41% 37% 21% 12%

Car Loan 38% 30% 25% 16% 9% 5%

Child Care

Expenses

17% 10% 19% 5% 4% 2%

Health Care Costs 12% 7% 11% 14% 13% 15%

Other 8% 15% 24% 42% 58% 68%

46

Elliott D. Pollack & Company*Data through third quarter 2015

Average Borrowers Credit Scores

on All New FHA Loans

2007– 2015*Source: U.S. Dept. of HUD/FHA

632

700

683

600

620

640

660

680

700

720

740

Recession Periods

47a


Average Borrowers Credit Scores

on All New Fannie Mae Loans

2004 – 2015* Source: Fannie Mae

716

762

747

640

660

680

700

720

740

760

780

800

Recession Periods

47b*Data through third quarter 2015


Single Family Permits

Blue Chip ForecastSource: R.L. Brown, Greater Phoenix Blue Chip

Year Permits % Change

2014 10,840 -15.2%

2015* 15,880 46%

2016* 19,300 22%

2017* 22,900 19%

*2015, 2016 & 2017 are forecasts from third quarter Greater Phoenix Blue Chip.

48


Lot Inventory

50


Greater Phoenix Construction Employment

Annual

1970 – 2014* Source: University of Arizona Recession Periods(000s)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

220.0

Trough 82,400 jobs

Current 95,300 jobs

Peak 179,900 jobs

*Data from U of A Q4 2015 forecast

84,000 Jobs Gap

51


Arizona Population:

Foreign-Born, Non-Citizen Source: American Community Survey

300,000

350,000

400,000

450,000

500,000

550,000

600,000

-1.9%9.5%

9.2%

6.0%

3.6%

9.8%

6.1%

-8.5%

-6.4%

-13.8%-2.4% -1.9%

2.3%

Recession Periods

SB 1070 passed in 2010

52


Positions Builders are Having Trouble Filling

Roofers

Plumbers

Painters

Electricians

Masons

Framers

Carpenters

40.0%

45.0%

46.0%

46.0%

53.0%

67.0%

68.0%

Source: National Association of Home Builders, June 2015

53


Who do we hire if there is a

construction labor shortage?



Pre-2007 Post-2007


U.S. Population by Age

Ages 18-40Source: U.S. Census Bureau, Population as of July 1, 2014

3.8

4.0

4.2

4.4

4.6

4.8

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

4.2

4.3

4.4

4.5

4.6

4.7 4.7

4.5

4.4

4.3 4.44.4

4.3

4.34.3

4.3

4.2

4.14.0

4.0

3.93.9

3.9

Millions

Average

Age of

First-time

Homebuyer

Average

Age of

Repeat

Homebuyer

Largest Age Cohort

56


Multi-Family

57


Apartments

Births 26 year lag


2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000


2015

58


Retirement Home Cycle

Births 65 year lag


2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2015


59


Multi-Family Year-End Vacancy Rates

Greater Phoenix County 1975–2017*Source: ASU Realty Studies / Berkadia**

6.2%

4.1%3.3%

2.8%

3.9%

6.1%

4.4%

6.1%

6.9%

7.7%

10.1%10.6%

13.0%14.1%

13.4%

10.0%9.5%

8.0%

4.0%3.8%4.5%4.5%

4.8%

5.1%5.9%

6.8%

8.2%

9.4%9.6%

7.9%

6.8%

7.8%

10.2%

12.5%

13.4%

10.8%

7.5%

6.3%

6.6%

6.0%

6.3%6.2%

6.1%

0%

3%

6%

9%

12%

15%

18%

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*2015, 2016 & 2017 are forecasts from Elliott D. Pollack & Co.

**Data prior to 2005 is from ASU

Recession Periods

60


Multi-Family Housing Market Source: PMHS and Berkadia

Absorption Completions

2007 (3,121) 3,800

2008 (4,466) 5,900

2009 9,100 6,231

2010 11,619 200

2011 7,729 303

2012 2,950 910

2013 3,660 2,390

2014 6,750 4,970

61


Multi-Family PipelineSource: CB Richard Ellis

Year

Potential

New Supply

2015 6,621

2016 5,503

2017 10,159

63


• Construction still lags (except for

apartment construction)

64


OFFICE

66


Office Space Year-End Vacancy Rates

Greater Phoenix 1986–2017*Source: CBRE

26.7%

22.8%

24.0%

26.7%26.4%

25.4%

22.7%

18.8%

14.8%

11.7%

9.5% 9.2%

9.5%10.0%

9.9%

16.0%

18.8%

18.3%

16.4%

12.6%

11.1%

13.9%

19.1%

24.5%

26.2%25.5%

23.9%

22.4%21.1%

18.7%17.5%16.9%

0%

5%

10%

15%

20%

25%

30%

35%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

*2015, 2016 & 2017 are forecasts from Greater Phoenix Blue Chip.

Recession Periods

67


Greater Phoenix Office Market*Source: CBRE

Year Absorption (sf) Chg in Inventory (sf)

2005 3,119,293 7,987

2006 3,245,888 **2,320,302

2007 1,500,704 4,905,374

2008 (603,112) 3,402,646

2009 (667,329) 1,798,415

2010 233,670 2,011,404

2011 1,857,433 3,144,910

2012 2,020,529 973,282

2013 1,721,366 (35,566)

2014 1,969,716 1,107,906

2015*** 2,232,024 1,832,319*Only includes multi-tenant space greater than 10,000 SF

** A number of buildings in downtown and mid-town are being converted to office condos.

***Data through third quarter 2015 68


INDUSTRIAL

69


Industrial Space Vacancy Rates

Greater Phoenix 1980 – 2017*Source: CBRE

8.4%

9.4%

11.1%

9.7%

12.8%

13.2%

16.4%15.2%14.6%

12.8%

14.0%

14.8%

13.6%

10.8%

7.4%

6.6%

5.7%

7.0%7.1%

8.1%7.4%

9.8%10.3%

9.7%

8.5%

5.6%

6.7%

8.4%

12.5%

16.1%

14.7%

12.4%

10.9%

11.4%11.0%11.1%

10.1%9.4%

0%

5%

10%

15%

20%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

* 2015, 2016 & 2017 are forecasts from the Greater Phoenix Blue Chip

Recession Periods

70


Greater Phoenix Industrial MarketSource: CBRE


2005 13,349,129 7,072,477

2006 6,032,175 7,829,959

2007 8,359,835 13,914,181

2008 629,838 13,467,215

2009 (4,649,352) 4,753,218

2010 4,455,097 2,451,202

2011 7,753,111 2,842,185

2012 7,405,168 3,358,724

2013 8,783,982 8,902,571

2014 6,214,680 6,791,313

2015* 5,639,447 3,329,149

*Data through third quarter 2015 71


RETAIL


Greater Phoenix Retail MarketSource: CBRE


2005 6,708,155 6,248,789

2006 5,244,597 4,582,618

2007 9,424,362 11,104,865

2008 3,395,986 6,229,205

2009 (1,117,100) 4,405,985

2010 (75,352) 902,380

2011 (152,647) 24,543

2012 1,879,005 184,932

2013 1,579,202 (325,959)

2014 1,487,313 (49,225)

2015* 979,282 30,539

*Data through third quarter 2015 73


Retail Space Vacancy Rates

Greater Phoenix 1985–2017*Source: CBRE**

6.6%

8.9%

10.0%

11.8%13.1%

14.2%

13.5%12.7%

11.1%

9.8% 8.7%

7.9%7.5%

6.3%5.5%

5.3%6.6%7.3%

7.4%

6.1%5.3%

5.1%

6.2%

7.5%

11.4%

12.2%12.2%

11.0%10.2%

9.6%9.3%8.7%8.3%

0%

5%

10%

15%

20%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

* 2015, 2016 & 2017 are forecasts from the Greater Phoenix Blue Chip

** Data prior to 1992 is from Grubb & Ellis

Recession Periods

74


Good News –

Outlook for real estate is improving.

75



Pre-2007 Post-2007


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important economic data released

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www.arizonaeconomy.com(Click on Subscribe to MMQ)

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