arizona economic housing outlook

Elliott D. Pollack & Company

Everything You Wanted to Know About Arizona and

Greater Phoenix

San Jose Real Estate Investors

November 19, 2013

Presented By:Rick Merritt

President, Elliott D. Pollack & Company


U.S. EconomicOverview


You Choose…


It is only because conditions have been

so poor for so long that we feel this

(insert word here) recovery is OK.


When will the recovery firm up?


Good News –

The recovery should continue because there are no significant imbalances.


Overall • No irrational exuberance

Consumers• Debt burden low• Net worth improved• Real income growth• Liquidity improving• Inflation low


Businesses • No excess inventory• No capacity issues• Dollar not overly strong

Government• No longer a drag on economy• Fed policy still expansive

Housing• Prices up but only as a rebound


Economic Crisis Du Jour

• U.S. Debt Ceiling• ObamaCare• Middle East• European Debt• Rating Downgrade• Middle East• Fiscal Cliff• Sequestration• Middle East… No growth for

you!?!?

http://hollywoodeastconnection.com/news/free-soup-for-you-friday.php


United States Real Gross Domestic Product* Annual Growth 1970 - 2014**

Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators

0.2%

3.3%

5.2%

5.6%

-0.5%-0.2%

5.4%

4.6%

5.6%

3.2%

-0.2%

2.6%

-1.9%

4.6%

7.3%

4.2%

3.5%3.5%4.2%

3.7%

1.9%

-0.1%

3.6%

2.7%

4.0%

2.7%

3.8%

4.5%4.5%4.8%

4.1%

0.9%

1.8%

2.8%

3.8%3.4%

2.7%

1.8%

-0.3%

-2.8%

2.5%1.8%

2.8%

1.6%

2.6%

-4%

-2%

0%

2%

4%

6%

8%

* Based on chained 2009 dollars.

** 2013 and 2014 are a forecast from the Blue Chip Economic Indicators, September 2013

Recession Periods

3.8% = 40-year avg during expansion

3.2% = 20-year avg during expansion


US Non-Farm EmploymentChange from Prior Month (S/A)

June 2010 – August 2013Source: Bureau Labor of Statistics

-130

-86

-37-43

228

144

9569

196205

304

115

209

78

132

225

166174

230

311

271

205

112125

87

153165138

160

247219

148

332

142

199176 172

104

169

1

(250)

(200)

(150)

(100)

(50)

0

50

100

150

200

250

300

350

400

Feel Better When >200k


US Non-Farm EmploymentPercent of Persons Working Full Time (S/A)

1970 – 2013*Source: Bureau Labor of Statistics Recession Periods

*Data through August 2013.

PROBLEM?


U.S. Unemployment Rate 1970 – 2013*

Source: Bureau of Labor StatisticsRecession Periods

*Seasonally adjusted data through July 2013

Underemployment = 14.3%


Consumers

Hey, check this out…


Wealth Effect

• Housing Prices

• Stock Market


Leads to…• Retirement freedom• Ability to relocate• Comfort with additional spending


U.S. Household Net Worth(Billions of Dollars, NSA)

1970 - 2013* Source: Board of Governors of the Federal Reserve System

*Data through first quarter 2013.

Recession Periods

Back on Trend


Financial Obligation Ratio**1980 – 2013*

Source: Federal Reserve

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

*Data through first quarter 2013**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.

Recession Periods


Household Debt CompositionPercent Change Year Ago

2004 – 2012 Source: The Federal Reserve Bank of New York Recession Periods


Interest Rate Monthly Payment

3.0% $449.22

4.0% $460.00

5.0% $471.78

6.0% $483.32

7.0% $495.03

8.0% $506.91

9.0% $518.96

10.0% $531.18

Rate Sensitivity$25,000 Car Loan Payments

5-Year Term


Interest Rate

$150,000Loan

$200,000Loan

$250,000Loan

3.0% $632.41 $843.21 $1,054.01

4.0% $716.12 $954.83 $1,193.54

5.0% $805.23 $1,073.64 $1,342.05

6.0% $899.33 $1,199.10 $1,498.88

7.0% $997.95 $1,330.60 $1,663.26

8.0% $1,100.65 $1,467.53 $1,834.41

For Comparison:Mortgage Payments

30-Year Term

Interest Rate

$150,000Loan

$200,000Loan

$250,000Loan

3.0% $632.41 $843.21 $1,054.01

4.0% $716.12 $954.83 $1,193.54

5.0% $805.23 $1,073.64 $1,342.05

6.0% $899.33 $1,199.10 $1,498.88

7.0% $997.95 $1,330.60 $1,663.26

8.0% $1,100.65 $1,467.53 $1,834.41


How Do We Get Off the Cheap Money Train?


Net Percentage of Large U.S. BanksReporting Tougher Standards versus Eased Standards

on Residential Mortgage Prime Loans2007Q1 – 2013Q2

Source: Federal Reserve, Board of Governors

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%


Jobs are being created at a slow rate.

Those that have jobs are being cautious in spending.

Unemployment will trend lower but underemployment will remain high.

Wealth levels are improving.

People feeling better, but uncertainty across the globe and U.S. Congressional roadblocks are affecting confidence.

Consumer Summary:


Business


Net Percentage of Large U.S. BanksReporting Tougher Standards versus Eased Standards

on Business Loans1997 – 2013*

Source: Federal Reserve, Board of Governors

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Small Firms

Large &Medium Firms

Recession Periods

* Data as of July 2013 survey.


65

70

75

80

85

90

Capacity Utilization Rate1970 – 2013*

Source: The Federal Reserve Bank of St. Louis

*Data through July 2013

Recession Periods


Business Spending on EquipmentPercent Change from Prior Quarter

2005 – 2013* Source: Bureau of Economic Analysis

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Recession Periods

*Data through first quarter 2013


Business Spending on Plant Percent Change from Prior Quarter

2005 – 2013* Source: Bureau of Economic Analysis

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Recession Periods

*Data through first quarter 2013Note: Data smoothed in Q1 & Q2 of 2011


U.S. Inventories to Sales Ratio: Total Business1992 – 2013*

Source: U.S. Dept. of Commerce: Census BureauRecession Periods

* Data through June 2013.

Jun-

92

Jun-

93

Jun-

94

Jun-

95

Jun-

96

Jun-

97

Jun-

98

Jun-

99

Jun-

00

Jun-

01

Jun-

02

Jun-

03

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

Jun-

10

Jun-

11

Jun-

12

Jun-

131.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60


Hours WorkedPercent Change from Year Ago

1976 – 2013* Source: Bureau of Labor Statistics

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Recession Periods

*Data through second quarter 2013


Businesses are in better shape.

Spending on equipment to continue to grow modestly.

Spending on plant will soon accelerate.

Employment to continue to grow.

Uncertainty over Congress, Obamacare

Business Summary:


Government


States At Risk For Spending CutsFederal Spending as Percent of State GDP

Pew Center for the States


Arizona


5

910

Phoenix, ArizonaEconomic Hub of the Southwest

Phoenix, Arizona


Arizona’s Five C’s• Cotton

• Cattle

• Climate

• Copper

• Citrus


How Arizona Ranks Among the States in Percentage Growth

Source: U.S. Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis

PERSONAL DECADE POPULATION EMPLOYMENT INCOME

1950 - 1960 4TH 3RD 4TH

1960 - 1970 3RD 3RD 4TH 1970 - 1980 2ND 3RD 3RD

1980 - 1990 3RD 3RD 5TH

1990 - 2000 2ND 2ND 3RD

2000 – 2010 2ND 10th 7TH


5

910

“SUNBELT”

Alaska

Hawaii

Industrial Northeast

Upper Midwest


Where Do In-Migrants Come From

1. California

2. Rust Belt (Illinois, Michigan, Pennsylvania)

3. Northeast (Washington D.C. to Boston)

4. Florida

5. Everywhere else


Arizona Population Distribution 2012Source: Arizona Department of Security Department


2000 - 2012Arizona Population Growth Distribution

Source: Arizona Department of Security Department


Greater Phoenix Population

Source: U.S. Bureau of Census; Arizona Department of Economic Security

Year Population1950 374,9611960 726,1831970 1,039,8071980 1,600,0831990 2,238,4982000 3,251,8762010 4,192,887

U.S. 2010 = 309,769,609


2

4

8

1

10

Arizona population growth was

slow but still Top 10 in 2012

Percent Change 2012

7

U. S. Census Bureau

65

39


Arizona RankPopulation Growth

1991-2012Source: Census Bureau


0%

2%

4%

6%

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%

1.8%

Greater Phoenix Population Annual Percent Change 1976–2014*

Source: Arizona State University & Department of Commerce, Research Administration

.

* 2013 & 2014 forecast is from Elliott D. Pollack & Co.

Recession Periods


2

1

323 15

11

9

4

5

Alaska 24

710

Job Growth 2006Source: US BLS

Jobs growing

Jobs declining

Top 10

Hawaii

6

8

50

14


49

46

2341 40

3

43

27

50

Hawaii

39

1

Alaska 2

1848

4

10

5

Jobs growing

Jobs declining

Top 10

8

6

9

7

Job Growth 2010Source: US BLS

32


7

49

11 5

3

38

21

9

4

1

2

Alaska 50

Jobs growing

Jobs decliningTop 10

Hawaii

23

610

Job Growth 2013YTD July 2013 vs YTD July 2012

Source: US BLS

8


4

29

24 7

5

40

19

42

6

2

1

Alaska 50

Jobs growing

Jobs decliningTop 10

Hawaii

35

916

Job Growth 2013July 2013 vs July 2012

Source: US BLS

310

8


Arizona RankEmployment Growth

1990-2013*Source: Bureau of Labor Statistics

*Year-to-date through July


State Job Growth 2013YTD July 2013 vs YTD July 2012

Source: US BLS

North Dakota 3.97% 1Utah 3.27% 2Texas 2.94% 3Idaho 2.81% 4Colorado 2.59% 5Washington 2.08% 6Arizona 2.07% 7Georgia 2.06% 8Nevada 1.95% 9Montana 1.91% 10California 1.89% 11North Carolina 1.88% 12Minnesota 1.87% 13Delaware 1.78% 14Florida 1.77% 15Tennessee 1.76% 16Mississippi 1.72% 17New Jersey 1.63% 18Indiana 1.60% 19South Carolina 1.58% 20Oregon 1.49% 21Massachusetts 1.49% 22Hawaii 1.45% 23Maryland 1.45% 24Vermont 1.43% 25

Iowa 1.39% 26Louisiana 1.25% 27South Dakota 1.23% 28Michigan 1.23% 29New Hampshire 1.21% 30Virginia 1.13% 31Missouri 1.12% 32Kentucky 1.09% 33New York 1.09% 34Kansas 1.06% 35Oklahoma 1.03% 36Illinois 0.99% 37New Mexico 0.77% 38Wisconsin 0.76% 39Nebraska 0.71% 40Connecticut 0.70% 41Alabama 0.62% 42Arkansas 0.60% 43West Virginia 0.58% 44Ohio 0.47% 45Pennsylvania 0.39% 46Rhode Island 0.38% 47Maine 0.20% 48Wyoming 0.13% 49Alaska 0.00% 50

20


Top Sources of New JobsArizona

Source: Bureau of Labor Statistics

*Job growth July 2013/ July 2012

Job Growth Wage

Total 67,600 $45,237

1 Food Services 10,100 $16,452

2 Health Care 8,900 $47,847

3 Construction 8,200 $47,020

4 Financial Activities 7,400 $59,564

5 Wholesale Trade 6,200 $69,918

6 Administrative Services 5,700 $32,741

7 Retail Trade 4,400 $29,843


Top Sources of New JobsU.S.

Source: Bureau of Labor Statistics

*Job growth July 2013/ July 2012

Job Growth Wage

Total 2,296,000 $49,200

1 Food Services 387,800 $16,242

2 Administrative services 354,700 $34,870

3 Retail Trade 353,200 $27,729

4 Health Care 322,200 $45,407

5 Professional services 237,900 $83,357

6 Construction 166,000 $52,294

7 Financial activities 124,000 $80,097


Arizona Job Losses Exceeded U.S.Source: Bureau of Labor Statistics, Seasonally Adjusted Data


Arizona Jobs Regained Since Bottom of CycleMost Industries Yet To Regain Lost Jobs


Greater Phoenix

Economy


Phoenix Moving Up: Rank of the Largest CMSA’s/MSA’s

Source: U.S. Department of Commerce, Bureau of the Census

Rank 1980 1990 2010 2012

1 New York New York New York New York2 Los Angeles Los Angeles Los Angeles Los Angeles3 Chicago Chicago Chicago Chicago4 Philadelphia Washington, DC Dallas Dallas5 Detroit San Francisco Philadelphia Houston6 San Francisco Philadelphia Houston Philadelphia7 Washington, DC Boston Washington DC Washington DC8 Dallas Detroit Miami Miami9 Houston Dallas Atlanta Atlanta10 Boston Houston Boston Boston11 Nassau-Suffolk Miami San Francisco San Francisco12 St. Louis Seattle Detroit Riverside

13 Pittsburgh Atlanta Riverside Greater Phoenix14 Baltimore Cleveland Greater Phoenix Detroit15 Minneapolis Minneapolis Seattle Seattle16 Atlanta San Diego Minneapolis Minneapolis17 Newark St. Louis San Diego San Diego18 Orange County, CA Pittsburgh St. Louis Tampa

19 Cleveland Greater Phoenix Tampa St. Louis20 San Diego Tampa Baltimore Baltimore21 Miami Denver Denver Denver22 Denver Cincinnati Pittsburgh Pittsburgh23 Seattle Portland Portland Charlotte24 Tampa Milwaukee Sacramento Portland25 Riverside Kansas City San Antonio San Antonio

26 Greater Phoenix Sacramento Orlando Orlando


Top 20 Largest CMSA’s/MSA’sSource: U.S. Department of Commerce, Bureau of the Census

CMSA/MSA Population

New York 19,831,858

Los Angeles 13,052,921

Chicago 9,522,434

Dallas 6,700,991

Houston 6,177,035

Philadelphia 6,018,800

Washington DC 5,860,342

Miami 5,762,717

Atlanta 5,457,831

Boston 4,640,802

San Francisco 4,455,560

Riverside 4,350,096

Greater Phoenix 4,329,534

Detroit 4,292,060

Seattle 3,552,157

Minneapolis 3,422,264

San Diego 3,177,063

Tampa 2,842,878

St. Louis 2,795,794

Baltimore 2,753,149


WHY GREATER PHOENIX GROWS


Ten Factors Contributing to Greater Phoenix’s Growth

1. Climate2. Lifestyle3. Geographic Location4. Pro-Growth Attitude5. Competitive Tax Structure6. Focused Incentives7. Leadership with Common Sense8. Low Cost of Living9. Congressional delegation working for State’s Long-Term

Needs10. Business & Government Headed in Same Direction


No Natural Disasters

• No hurricanes• No tornadoes• No earthquakes• No tsunamis• No fires• No mudslides


People and companies vote with their feet…


…People have been voting for Greater

Phoenix for decades.


Greater Phoenix’s economic fundamentals have not changed

with the recession (even housing has returned to more

affordable levels).

The long term economic outlook remains favorable.


MYTHS


Age: Phoenix is all old retired Midwesterners

living in Sun City


Male Female Total

Greater Phoenix 32.9 34.6 33.7

United States 35.4 38.2 36.8

MEDIAN AGESource: U.S. Bureau of the Census


Arizona will run out of water


STATEWIDE WATER DEMAND - Current Source: AZ DWR


GREATER PHOENIX WATER DEMAND Source: Arizona Department of Water Resources

Municipal 41.4%

Agricultural & Other58.6%


COMPARISON OF WATER USAGEAGRICULTURE vs. RESIDENTIAL Source: Arizona Water Resources Assessment, AZ DWR

0

2

4

6

8

AC

RE

FE

ET

OF

WA

TE

R P

ER

AC

RE

AGRICULTURESINGLE FAMILY

RESIDENTIAL

5.74

1.81


Wages...


Median Household Income - Phoenix Peer Metro Areas

Adjusted for Cost of Living

2010

City Nominal Nominal Rank Adjusted Adjusted Rank

Dallas $54,539 8 $57,959 3

Atlanta $55,464 7 $58,077 2

Austin $56,218 6 $58,867 1

Salt Lake City $57,138 4 $56,797 5

Denver $59,007 3 $57,233 4

Phoenix $52,796 10 $52,481 8

Las Vegas $53,505 9 $52,599 7

Seattle $64,028 1 $52,828 6

Portland $55,521 6 $49,929 9

San Diego $60,231 2 $45,595 10


What Makes Greater Phoenix Tick?

Current Economic Base

1. High-tech (Semi-conductors) 2. Aerospace & Defense3. Advanced Business Services4. Transportation, Distribution, &

Wholesale Trade5. Tourism6. Retirement & Second Home


Greater Phoenix Top EmployersSemiconductors #FTE Aerospace #FTEIntel Corp. 11,000 Raytheon Co. 11,500IBM 3,000 Honeywell Aerospace 10,000Freescale Semiconductor 3,000 Luke Air Force Base - 56th Fighter Wing 5,600Avnet Inc. 2,600 Boeing Co. 5,000General Dynamics 5,400 Orbital Sciences 1,500Motorola Satellite Comm. Inc. 1,700 Other #FTEMicrochip Technology Inc. 1,600 Apollo Group Inc. 10,000Jabil Circuits Inc. 1,400 US Airways 9,200Medtronic Inc. 900 Freeport-McMoRan Copper & Gold Inc. 8,100ON Semiconductor 800 Southwest Airline 4,400Microsemi Corp. 700 FedEx Express 3,900Financial Services #FTE United Postal Service 3,100Wells Fargo & Co. 13,700 Ebay 2,000Bank of America 12,500 GoDaddy.com Inc. 2,600JPMorgan Chase & Co. 11,400 W.L. Gore & Associates Inc. 2,000American Express 7,800 Insight Enterprises Inc. 1,500Charles Schwab & Co. Inc. 3,500 ConocoPhillips Co. 1,000USAA 3,000 Empire Southwest LLC 900Vanguard Group 2,100 PING Inc. 800Discover Financial Services LLC 1,900 Henkel 750

Notes : Al l rounded numbers are estimates of ful l time equivalents provided by each employer.

Source: Phoenix Bus iness Journal Book of Li s ts ; Arizona Republ ic


Expansions and RelocationsSource: Arizona Commerce Authority

Apple: U.S. manufacturing facility (GT Advanced Technologies) – 700 jobs in the first year.

State Farm: State Farm, selected Arizona as one of its four regional headquarters - 1.9 million SF of office space in Tempe, 7,000 new jobs with a capital investment of $600 million.

Composite Mirror Applications: Composite Mirror Applications is a defense contractor that develops and produces carbon fiber reinforced composite mirrors and structures.

Garmin: 140 jobs and $11 million capital investment.

Asurion: Mobile tech support center - 450 new jobs and $12 million in capital investment.

GoDaddy: Global Technology Center, 150,000-square-foot facility, 1,300 employees.

General Motors: Fourth IT Innovation Center in Chandler, 1,000 jobs, $21 million in capital investment.

STEALTH Software: Site of its U.S. headquarters, 200 jobs.


Employment CompositionGreater Phoenix vs. U.S.

Source: Arizona Department of Economic Security, U.S. Department of Labor

Sector PHX-MSA USNatural Resources & Mining 0.2% 0.5%Construction 5.1% 4.3%Manufacturing 6.4% 8.9%Goods Producing 11.7% 13.7%

Trade 17.5% 15.3%Transportation, Warehousing 3.6% 3.6%Information 1.6% 2.1%Financial Activities 7.9% 5.9%Services 44.0% 42.1%Government 13.7% 17.3%Service Producing 88.3% 86.3%

Non-FarmWage & Salary 100.0% 100.0%


Greater Phoenix Employment* Annual Percent Change 1975–2014**

Source: Department of Commerce, Research Administration

-3.7%

4.9%

8.7%

13.3%

10.4%

3.7%

3.0%

-0.1%

5.8%

11.2%9.3%

4.8%3.5%

5.9%

2.5%

2.2%

-0.3%

1.1%

4.9%

6.6%7.2%7.3%

5.4%5.4%

4.6%3.5%

1.2%

-0.1%

1.5%

3.9%

6.2%5.4%

1.6%

-2.5%

-7.9%

-1.9%

1.5%2.4%

2.6%

3.0%

-10%-8%-6%-4%-2%0%2%4%6%8%

10%12%14%

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

** 2013 & 2014 forecast is from Elliott D. Pollack & Co.

Recession Periods


Employment Levels: Greater Phoenix back to Peak in late-2015 or early 2016?

Source: ADOA

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2,000.0

2,200.0

2,400.0

Recession Periods

Peak

*Based on seasonally unadjusted monthly data


Year Rank # MSA’s

2003 3 25

2004 3 25

2005 1 26

2006 1 27

2007 9 28

2008 24 28

2009 24 25

2010 24 24

2011 14 25

2012 6 27

2013* 5 28

Year Rank # MSA’s

1991 4 19

1992 4 19

1993 2 19

1994 1 19

1995 1 20

1996 1 21

1997 1 22

1998 1 23

1999 3 24

2000 9 25

2001 7 26

2002 5 25

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

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

*Year-to-date, July 2013


Greater Phoenix Employment* Source: Bureau of Labor Statistics

Sectors in DeclineNet

Change%

Change

Other Services -800 -1.3%

*July 2013/ July 2012

Sectors ImprovingNet

Change%

Change

Trade, Transp, Utilities 10,400 2.9%

Education & Health Services 9,100 3.7%

Leisure & Hospitality 8,800 5.0%

Construction 8,400 9.4%

Government 5,900 3.0%

Professional & Bus Services 5,700 2.0%

Financial Activities 5,000 3.4%

Information 400 1.3%

Manufacturing 200 0.2%

Natural Resources & Mining 0 0.0%


U.S. Has Gained 77% of Lost Jobs2 Million Jobs (23%) Still to Recover

Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally AdjustedSlide stolen from Lee McPheters…

Peak 138 million Jan. 2008

Feb. 2010

8.7 Million U.S. Jobs Lost (6.4%)

6.7 Mil. Jobs Regained (77%)


Arizona Has Gained 47% of Lost Jobs167,000 Jobs (53%) Still to Recover

Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted

Peak 2,687,000 Oct. 2007

Sept. 2010

314,000 Arizona Jobs Lost (12%)

147,000 Jobs Regained (47%)


Greater Phoenix Has Gained 47% of Lost Jobs133,000 Jobs (53%) Still to Recover

Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted

Peak 1,932,000 July 2007

Sept. 2010

251,000 Phoenix Jobs Lost (13%)

118,000 Jobs Regained (47%)


WHY?(1) Significant declines in population flows.

(2) Steeper housing decline.

*** But, expect higher rates of growth in AZ going forward. Full recovery in AZ will be about the same as the U.S. – Late 2015


Population Flows


SRP Residential Utility Hookup Percentage Growth Greater Phoenix 2003 – 2013*

Source: SRP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

*Data through April 2013.


APS: Slowest Growth in over 50 years1954 – 2013*

0%

1%

2%

3%

4%

5%

6%

7%

8%

Re

sid

en

tia

l Cu

sto

me

rs O

ve

r P

rio

r Y

ea

r

*Data through second quarter 2013Source: APS


0%

2%

4%

6%

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%

1.8%

Greater Phoenix Population Annual Percent Change 1976–2014*

Source: Arizona State University & Department of Commerce, Research Administration

.

* 2013 & 2014 forecast is from Elliott D. Pollack & Co.

Recession Periods


How quickly are population flows going to recover?

No one knows but not as rapidly as we would like.


Housing


Fewer people mean fewer houses.


A dimmer switch…

Not a light switch…

Bad

Good

Bad

Not great OK

Good

Great

Mediocre

Terrible

Housing


Home Prices IndicesGreater Phoenix

1989 – 2013* Source: Macro Markets, LLC; AMLS

60

80

100

120

140

160

180

200

220

240

MLS Index Case-Shiller Index Trendline (4.0%)

Recession Periods

*Data through July 2013.


Greater Phoenix Single Family Permits

Source: RL 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 8,027 -36.2%

2010 6,822 -15.0%

2011 6,794 -0.4%

2012 11,615 71.0%

2013* 10,083 8.7%

*Data YTD Sept 2013 v. Sept 2012


Single Family Permits Greater Phoenix 1975–2016*

Source: RL Brown & Elliott D. Pollack & company

8.711.1

22.3

28.9

18.8

11.510.6

11.6

19.4 18.1

22.623.2

17.915.1

12.010.6

13.7

18.4

22.7

27.428.5

29.631.7

36.035.3

34.736.2

38.9

47.7

60.9

63.6

42.4

31.2

12.6

8.06.8

6.811.6

13.516.0

20.0

25.0

0

10

20

30

40

50

60

70

# Permits(000)

*2013 – 2016 forecast is from Elliott D. Pollack & Company


Single-Family Vacant UnitsGreater Phoenix 1993–2011

Source: PMHS

13,68115,42514,975

13,72513,75014,725

17,52519,800

17,525

23,82524,450

17,12519,325

29,775

51,650

58,050

102,275101,625

83,475

0

20,000

40,000

60,000

80,000

100,000

120,000


0

2,000

4,000

6,000

8,000

10,000

1,087 1,095 983682 772

2,367

6,062

8,675

7,800

4,014

3,221

1,274

New Residential Foreclosure Notices Greater Phoenix

Source: Information Market


0

10,000

20,000

30,000

40,000

50,000

6,8944,936 5,002

3,141 2,483

7,312

24,469

47,144

42,152

24,393

16,829

7,066

Total Pending Foreclosures Greater Phoenix

Source: Information Market


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

84 1219 2

104

1,381

4,247

2,384

3,008

720

348

Greater Phoenix Single FamilyLender Owned Sales*June 2003 – June 2013

Source: TheWilcoxReport.com


Total Single Family Units Occupied by Renters2000 - 2011

Greater PhoenixSource: American Community Survey

0%

5%

10%

15%

20%

25%

11.7% 12.4%11.6% 11.3%

11.7%11.7%

14.1%15.3%

16.4%18.1%

20.3%

21.8%


Greater PhoenixHousing Affordability Index

2004 – 2013*Source: National Association of Realtors

66.5

60.3

76.4

70.9

63.0

68.6 67.0 67.0

73.5

64.4

68.8 69.0 69.5 69.7

49.3

27.4

32.4

65.3

83.680.8

83.6

77.7 76.2

0

20

40

60

80

100

1991Q2

1992Q2

1993Q2

1994Q2

1995Q2

1996Q2

1997Q2

1998Q2

1999Q2

2000Q2

2001Q2

2002Q2

2003Q2

2004Q2

2005Q2

2006Q2

2007Q2

2008Q2

2009Q2

2010Q2

2011Q2

2012Q2

2013Q2


0%

10%

20%

30%

40%

50%

1998

Q1

1998

Q3

1999

Q1

1999

Q3

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

Investor Activity:Percent of Non-Owner Occupied Sales of Total Sales

Greater PhoenixSource: DataQuick


Number of Active SubdivisionsGreater Phoenix

Source: CRA

0

100

200

300

400

500

600

700

800

536568 574

597 607

663 665 672 687 693710

512

322

275 255

181208


In a weak economy, population growth fails to

translate into household growth, but when the economy begins to

strengthen, there is pent-up demand for housing.

Source: Linneman Letter


Many renting will now buy. Many doubled-up will now buy. Some population growth is back. Employment growth is occurring. Retirees less tied to current homes.

VACANT?


Pent-Up Demand

Household Formations: lower during recessions (doubling up, living at home with mom & dad, etc.)


Percent of 18-34 Year Olds Living With ParentsU.S.: 1983 – 2012

Source: US Census Bureau Recession Periods


Housing is a market of markets


The outlook for housing is still reasonably good


Greater Phoenix PopulationSource: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project

YEAR Population

1950 374,000

1960 726,183 6.9%

1970 1,039,807 3.7%

1980 1,600,093 4.4%

1990 2,238,498 3.4%

2000 3,251,876 3.8%

2010 4,192,887 2.6%

2020(forecast)

5,011,767 1.8%??


Greater Phoenix EmploymentSource: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project

YEAR EMPLOYMENT

1950 74,400

1960 181,700

1970 327,200

1980 636,200

1990 1,013,300

2000 1,578,400

2010 1,686,800

2020(forecast)

2,312,700??


Headwinds for Single Family Market

• Shortage of construction workers• Shortage of finished lots• Rising material prices• Rising interest rates


Multi-Family


Multi-Family Year-End Vacancy RatesMaricopa County 1975–2014*

Source: ASU Realty Studies / Hendricks & Partners**

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%7.1%

6.6%

0%

3%

6%

9%

12%

15%

18%

*2013 -2014 are forecasts from the Greater Phoenix Blue Chip

**Data prior to 2005 is from ASU

Recession Periods

Elliott D. Pollack & Company *Data through second quarter 2013.


Multi-Family Market

• High prices paid for existing properties

• Construction activity strong• Over-building of market on the

horizon


OFFICE


Office Space Year-End Vacancy RatesMaricopa County 1986–2014*

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%

22.0%

19.0%

0%

5%

10%

15%

20%

25%

30%

35%

*2013 -2014 are forecasts from the Greater Phoenix Blue Chip

Recession Periods


Under any reasonable employment growth scenario,

it will be at least 2016 before any significant office construction

occurs (although some sub-markets

will be sooner).


INDUSTRIAL


Industrial Space Vacancy RatesMaricopa County 1980 – 2014*

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%11.0%

10.0%

0%

5%

10%

15%

20%

* 2013 - 2014 are forecasts from the Greater Phoenix Blue Chip

Recession Periods


As of second quarter 2013, there are 6.4 million square feet

of industrial space under construction.

Source: CBRE


RETAIL


Retail Space Vacancy RatesMaricopa County 1985–2014*

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%10.9%

10.2%

0%

5%

10%

15%

20%

* 2013-2014 are forecasts from GPBC** Data prior to 1992 is from Grubb & Ellis

Recession Periods


Maricopa County Retail Sales Percent Change Year Ago*

1999 – 2013**Source: Arizona Department of Revenue

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

*Data through May 2013**3-month moving average

Note: January 2010 and March 2010 retail sales are estimates.

Recession Periods


Maricopa County Motor Vehicle Retail Sales Percent Change Year Ago

2006 – 2013*Source: Arizona Department of Revenue

*Data through March 2013**3-month moving average

Note: January 2010 and March 2010 retail sales are estimates.


Available Big Box SpaceGreater Phoenix Year End 2012:

272 Spaces7.1 Million SF

Source: CBRE


What’s Happening?

• Consumers tightening their belts and reducing debt

• Domination of retail by large national chains

• Internet sales


Retail Market

• Population growth needed to assist market

• Long term viability of local retailers questionable


CONCLUSIONS:How will it all turn out?


The economy is improving in both absolute and

relative terms.


Arizona & Greater Phoenix– Slow but mildly accelerating recovery.

• No recession on the horizon• 2013 will be slightly better than 2012• 2014 will be better than 2013• 2015 should be a good year


Greater Phoenix PopulationSource: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project

YEAR Population

1950 374,000

1960 726,183 6.9%

1970 1,039,807 3.7%

1980 1,600,093 4.4%

1990 2,238,498 3.4%

2000 3,251,876 3.8%

2010 4,192,887 2.6%

2020(forecast)

5,011,767 1.8%??


Greater Phoenix EmploymentSource: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project

YEAR EMPLOYMENT

1950 74,400

1960 181,700

1970 327,200

1980 636,200

1990 1,013,300

2000 1,578,400

2010 1,686,800

2020(forecast)

2,312,700??


New Greater Phoenix 2014 Forecast

Source: IHS Global Insight

• 3.3% Growth – Gross Metro Product• 2.8% Employment Growth• Greater Phoenix economy larger than

Oregon’s and 25 other states’


For a quick analysis of important economic data released

each week, subscribe to the Monday Morning Quarterback

www.arizonaeconomy.com/mmq_subscribe.htm


ELLIOTT D. POLLACK & Company

7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251

480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / [email protected]

• Economic and Fiscal Impact Analysis/Modeling

• Real Estate Market and Feasibility Studies

• Litigation Support

• Revenue Forecasting

• Keynote Speaking

• Public Finance and Policy Development

• Land Use Economics

• Economic Development

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