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Phoenix, Arizona
 If
you are visiting Phoenix, Arizona considering
moving to Phoenix, or even if you've lived here
for 20 years, there are some things about Phoenix
that you might not know. Some of these items are
important when evaluating a community. Some of these
facts are downright useless, but fun nonetheless! Please
keep in mind that statistics vary greatly depending upon
the time they were obtained, the source and the exact
population measured. Therefore, none of these numbers
represented here are exact, but are merely the most
recent and reasonable numbers I have been able to
collect.
Phoenix, Arizona
has been known for many things. This city receives much
recognition for being in the top ten cities in the
country. for instance, it is one of the ten largest
cities in the country. It is considered a 'business hot
spot' being ranked one of the top ten cities to relocate
or start a new business. Greater Phoenix was one of the
top ten metro areas for jobs, based on both the
percentage increase and the real increase in the number
of jobs. The Chandler Ostrich Festival has been ranked
one of the ten best festivals in the country. Phoenix is
one of the top ten most misspelled cities in the
country. Arizona State University in Tempe of one of the
top ten largest universities in the country. And the
list goes on. Some of our claims to fame are, well, not
that positive. for instance, Phoenix is known for having
one of the highest (if not THE highest) vehicle theft
rates in the country
General: Phoenix
is Arizona's state capitol. When people refer to
Phoenix, they are often discussing the greater Phoenix
area, which includes about 23 cities and towns of the
metropolitan area. Phoenix is one of the fastest growing
cities in the country, and with its size and growth it
has developed into a major city--with all the
advantages, and many of the disadvantages. Many people
are surprised to learn that Phoenix is the sixth largest
city in the United States.
Phoenix Tidbits: Phoenix was incorporated as
a city in 1881. Geographically, Phoenix covers about 470
square miles. Phoenix Vital Statistics (as of 2000
Census) The population of Phoenix at the last census was
about 1.3 million. Only 11% of the people in Phoenix are
over the age of 60, and 49% are between the ages of 25
and 59. Almost 23% of the population of Phoenix have at
least one college degree. The median household income in
Phoenix is about $41,000.
Phoenix Major Attractions: There is a great
deal to see and do in Phoenix. Some of my favorite
attractions are the Arizona Science Center, the Heard
Museum, the Desert Botanical Garden, Bank One Ballpark,
The Phoenix Zoo, Phoenix Art Museum and the Phoenix
Symphony.
Phoenix Median Home Price: The median price
of a new home is about $157,000, and the median price of
a pre-owned home is about $112,000
Other Phoenix Stuff
- There are four
area codes in the Phoenix area: 602, 480, 623
and 928.
- Phoenix is on
Mountain Standard Time, and never moves the
clock forward or back. Only the Navajo nation
observes daylight savings time.
- The average
price for a new single-family home is $138,270
(1999) and the average property tax is about
10%.
- Phoenix
originated in 1866 as a hay camp.
- There are six
major lakes within an hour's drive from Phoenix
Reports of the Phoenix
real estate market's demise have been greatly
exaggerated.
Source WP Carey
Phoenix, now the fifth
largest city in the United States, could be the
poster child for metropolitan areas where a bursting
residential housing bubble has created economic discord.
However, after parsing data from both the commercial and
residential sectors, the Phoenix real estate market
appears much stronger than the national press paints it,
report Larry Seay, chief financial officer of
Phoenix-based Meritage Corp., and Crocker Liu, McCord
Chair in Real Estate at the W.P. Carey School of
Business.
Speaking at an April 5 seminar in Phoenix entitled
"frontiers in Real Estate: Hedging Your Bets," both Seay
and Liu were optimistic along all points of Phoenix's
real estate continuum. The seminar was presented by the
W. P. Carey School's Center for Real Estate Theory and
Practice.
A builder's view of residential
The national press has jumped hard on the fact that the
inventory of Phoenix's existing single-family homes has
jumped from about 5,000 homes in early 2005 to over
45,000 today, Seay points out. But he says the
statistics look bleaker than they actually are.
Phoenix generally has an inventory of about 25,000
homes, he says, and the dip to 5,000 was an anomaly
during the height of the bubble. A lot of this dip can
be attributed to speculation; as much as 50 percent of
the inventory ended up unoccupied or investor-owned.
More importantly, Seay adds, with so many people moving
into the Valley of the Sun, this "will burn off very
quickly."
"Is an inventory of 45,000 homes too many? Sure, but
consider that you have 65,000 homes being built every
year in Phoenix and 128,600 people moved into the metro
area last year. That extra 25,000 will burn off," Seay
says. "Phoenix has gotten a lot of bad press about the
overhang, but Phoenix is a strong market."
In regard to commercial (office, industrial, retail and
multifamily) markets, Liu expects the Valley of the Sun
"to experience greater growth." In addition, he adds,
investors will be very active in the market this year
and the next.
A new look at the commercial market
To discern the health of Phoenix's commercial market,
Liu employed an unusual matrix combining corporate
earnings and property returns, which begs the question,
how does the change in corporate profits relate to
property returns? As Liu explains, since land represents
one of the four factors of production (which in turn
generates the rents that comprise cash flow to property
and the demand for more space which leads to price
appreciation) and corporate profits are the residual
after all production costs are paid, expect increasing
profits to increase property returns.
"If you take a look at all the major corporate players,
i.e. General Dynamics, Motorola, Intel, etc., in the
Phoenix metro area as defined by the Greater Phoenix
Economic Council, take the number of local employees for
each of these different companies, and then take a look
at forecasted earnings for the next 12 months, what this
would give you is some sort of predictive measure of how
real estate is growing," explains Liu.
There is a catch, however. There's another corporate
index -- from Bloomberg -- that tracks the local
economy. The difference between the two is that
Bloomberg solely tracks companies with a headquarters in
Phoenix, such as P.F. Chang's China Bistro Inc. The
Bloomberg index includes a large number of high-tech and
start-ups so it would show more volatility. Indeed,
using the GPEC index as a base, the average forward
looking EPS is $3.34 and has been on a moderately upward
trajectory, while the Bloomberg index trajectory looks
more like a hockey stick with a large inclining handle
and the forward looking EPS closer to $14.
Showing both indexes, Liu overlaid the price per square
foot for office and retail space, and the resulting
graph showed similar upward trajectories for both price
per square foot and earnings per share. "You can see
there is a relationship between what happens with our
local corporations, the kinds of profit they are
generating, and to our local real estate markets," he
stresses. "The same is true for industrial and
apartment."
After looking at earnings per share data, Liu concludes
Phoenix should experience a growth rate of 1.4 percent
for 2007 and an even greater expansion in 2008.
Liu also parsed existing data to discern the local
investment market. What he saw, for example, was a
capitalization rate (estimates value of real estate
investment; net operating income divided by sales price)
for the Phoenix office market that has been running
correspondingly to the national average, from about 9
percent and above in 2001 to under 7 percent at the end
of 2006. In the same vein, the trend line for price per
square foot for the Phoenix and the national markets
both head upwards at about the same pace. However, the
national price per square foot average is consistently
ahead of Phoenix.
A similar pattern takes place in regard to the apartment
market. Cap rates have declined from about 8 percent in
2001 to below 6.5 percent in 2006. The only difference
is that Phoenix cap rates have declined more
precipitously and the cap rate is actually below 6
percent. On a price per unit basis, the Phoenix and
national average moved upwards over the same period of
time. Again there was slight difference, with the
Phoenix market trending north moderately, while the
national price per unit average trend line showed
volatility and was steeper. The result is that the
national price per unit for apartments has remained
higher than Phoenix.
Price pop?
That is actually good news for Phoenix, notes Liu. "My
suspicion is, investors will probably be coming into the
Phoenix marketplace if conditions persist for office
properties. Prices will pop!" But in the industrial and
retail markets, Liu concludes, investors will have to
look hard to find bargains.
Liu looked at annual acquisitions in the Phoenix area by
market sector. First off, he says, about a third of the
investors in the Phoenix market are institutional
players, another 15-25 percent are private out-of-state
buyers, which means some 50 percent of the acquirers are
regional or national players, Liu says.
In the industrial sector, institutional investors are
the biggest players, while in the office sector the big
investors include opportunity and hedge funds, although
institutional players are also major participants. As
for retail, the big investors are real estate investment
trusts (REITs) and private out-of-state players.
Finally, for multifamily, in the past five years, the
action has been with condo-converters, with some
institutional and private out-of-state investors.
As noted, in the single-family residential market,
things look a lot uglier than in the commercial sector,
but again, as Seay observes, one really has to look
deeper to see that this market is healthier than it
first appears.
from the beginning of 2002 through the first three
quarters of 2004, the median list price of a Valley of
the Sun home basically plateaued, hanging about the
$200,000 range with no significant appreciation. Then
the bubble came to town and by May 2005, prices shot up
like a rocket to a peak of over $350,000. Since then,
the median list price has drifted back down to just
above $300,000. This was a significant price decrease,
says Seay. Prices dropped, he adds, even in the Multiple
Listing Service "and you usually don't see the price of
resale houses come down a lot."
Added to this was the overhang of new homes on the
market. In fact, Seay says, there was an "inventory
correction," with high contract cancellations, sales and
backlogs declining, spec inventories on the rise,
adjustments to house and land prices and finally to
inventory write-offs.
But don't despair, Seay cautions, because the Phoenix
market is one of the most attractive in the nation based
on:
Population -- The greater Phoenix metro area boasts
3.8 million people, with a growth of 128,600 last year.
Arizona was the fastest growing state in 2006.
In-Migration -- Over a 10-year period, from 1993 to
2003, in-migration was up 60.9 percent.
Employment -- The metro area employs 1.9 million people.
In 2006, the market added 90,700 jobs.
Unemployment as of the beginning of the second quarter
2007 stood at 4 percent
Job Growth -- In 2006, Phoenix ranked second in terms of
job growth right behind number one, Nevada, and ahead of
number three, Idaho, two states with a much smaller
population base. from 2005 to 2015, the Phoenix job
market is expected to expand by 24.3 percent. In
comparison, Dallas/fort Worth will expand 19.4 percent,
but Las Vegas should grow by 35.5 percent.
Household income -- The median household income stands
at $50,651, which is above the national average. Says
Seay, "Phoenix gets a bad rap for not having good jobs,
but the median is higher than the national average."
Lifestages -- Again, says Seay, people talk about
Phoenix being a retirement areas, but the percentage of
the local population that is in the "mature years" is
just slightly ahead of the national average.
Concludes Seay, for the period 2005 to 2010, expect
Phoenix population growth, household growth and
household income to run ahead of the national average.
Meritage ranks as the fifth largest homebuilder in the
Phoenix area, so in regard to the outlook for
homebuilders in the area, Seay sums it all up this way:
the market will be difficult in 2007 as the inventory
overhang must be reduced; price competition will
pressure margins, but eventually cancellation rates will
slow; and then favorable economic conditions will bring
underlying support to the market.
Adds Seay, "long-term demographic factors are still in
place."
Bottom Line:
After looking at earnings per share data, Liu concludes
Phoenix should experience a growth rate of 1.4 percent
for 2007 and an even greater expansion in 2008. "My
suspicion is, investors will probably be coming into the
Phoenix marketplace if conditions persist for office
properties. Prices will pop!" But in the industrial and
retail markets, Liu concludes, investors will have to
look hard to find bargains.
Seay sums it all up this way: the market will be
difficult in 2007 as the inventory overhang must be
reduced; price competition will pressure margins, but
eventually cancellation ra
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