Things are still hot in the Sun Belt, as conditions on the ground in Phoenix show strong job growth combined with increases in single-family housing starts and closings. The only troubling bit of news is rising rents, which could be allayed by new product flowing toward the end of the inventory pipeline.
The Q3 2019 results of Metrostudy’s analysis show employment growth at 2.7%, which easily beats the national rate of 1.4%. There’s more good news in the form of wage and salary year-over-year growth coming in at 3.8%, which is better than the U.S. as a whole, which is at 3%.
BY THE NUMBERS
Population: 4.9 million
Annual Job Growth: 2.7%
Median Home Sales Price: $295,000
Average Rental Rate: $1,163
Data from RealPage puts Phoenix in the No. 1 position for rent growth in the U.S. at 8.2%. Las Vegas and Greensboro, N.C., are Nos. 2 and 3. Even more disturbing is the rate of acceleration, which has been picking up speed since 2018. Since 2010, Phoenix rents are up 48.2% as compared with the national average of 35.9%. The bad news has to be taken with the realization that Phoenix, even with climbing rents, is still one of the most affordable places to live in the U.S. Its $1,163 average rent per month is still under the national average of $1,416.
New resident lease-rent growth measures 8.4% for Class A, 8.5% for Class B, and 7.2% for Class C. Renewal lease rent growth is 5.7% for Class A, 6.7% for Class B, and 7.3% for Class C. Occupancy rates in the Phoenix area is now even with the national average of 96.3%, but in the past it had been consistently lower since 2006. Occupancy is now at 95.5% for Class A, 96.4% for Class B, and 97.3% for Class C, which is leading the charge. Resident retention is relatively low with a 49.5% average.
Ryan Brault, Metrostudy’s regional director for Phoenix, says, “Phoenix has had some of the highest job and income growth of any market over the past few years, but it’s true that it still hasn’t been able to keep pace with the rise in housing costs. It is important to keep in mind that Phoenix is still affordable relative to a lot of places, especially California, which is our next-door neighbor. So much of the in-migration Phoenix has seen has come from that state and is helping to drive continued demand for housing in this market.”
The third quarter of 2019 saw single-family starts up 15% from Q2 2019 and 3.9% higher than the same quarter a year ago. The pace of quarterly closings was also 10.5% higher in Q3 2019 over the same quarter last year. There were 5,195 single-family and townhome closings observed in the third quarter as compared with 4,700 in Q3 2018.
Metrostudy’s report notes, “The steady retreat of interest rates has clearly brought back the demand as it has substantially helped bring the market back to a more normal range of affordability, especially benefiting the entry-level buyers that make up a large part of the overall buyer pool.”