October 21, 2015
Elliott D. Pollack
CEO, Elliott D. Pollack & Company
The recent strength in the new single-family home market has translated into more optimism on the part of the Blue Chip Consensus Panelists1. The panel now expects about 15,500 single-family units will be permitted in Greater Phoenix this year: that’s up from fewer than 11,000 units last year. The panel also expects the single family market to remain strong. For 2016, the panel expects nearly 19,300 units (a gain of about 25%) and nearly 22,900 units (a gain of another 19%) in 2017. This would be exceptional strength over an extended period of time and would bring the market closer to normal. Such a significant increase of permits over a two year period is going to be interesting to observe. Home builders have already expressed concerns about an inability to get sufficient skilled workers to build, even at the 2015 level of units, efficiently. Ultimately, the problem will be resolved even if it means higher salaries and, therefore, higher home prices.
Apartments are also expected to remain strong. Permits are expected to approach 7,000 units this year, 6,800 in 2016 and about 7,200 in 2017. On the other hand, unit absorptions are expected to remain at about 6,000 per year through 2016 but increase to about 6,700 units in 2017. The result is that vacancy rates, as expected, will remain low for an extended period of time. This suggests higher rent and will, ultimately, lead to more construction.
Overall the construction picture is improving fairly rapidly. The single family market, while way down from the previous peaks, is certainly making a significant recovery from the levels of earlier this decade. Apartments remains strong and vacancy rates are expected to continue to decline.
1Consensus Panel: Arizona Public Service, ASU – Realty Studies, Belfiore Real Estate Consulting, CBRE, COlliers International, CRA LLC, Cushman & Wakefield, Elliott D. Pollack & Co., Griffin Consulting, ROI Properties, Southwest Growth Partners, U of A, Eller College.
I will discuss these topics and others in more depth at the upcoming Market Update Seminar at the Arizona School of Real Estate & Business Scottsdale Campus on November 20th at the Annual Market Forecast seminar.