Things are hot in the Sun Belt, as conditions on the ground in Phoenix show strong job growth combined with increases in both housing starts and closings. The results of Metrostudy’s Q3 2019 analysis show that employment growth is 2.7%, which easily beats the national number of 1.4%. There’s more good news for Phoenix in the form of wage and salary year-over-year growth, coming in at 3.8%; the U.S. as a whole is at 3%.
The third quarter was especially kind to beginnings and endings, as starts were 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. That number was also up from the second quarter of this year, when there were 4,952 closings.
“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,” according to Metrostudy’s report.
Despite the wide open spaces of the American Southwest, the inventory of buildable land in the Phoenix metro is somewhat constrained. Metrostudy tracks vacant developed lots and is reporting a 3.1% decline from last quarter and a 5.1% drop from a year ago. Current vacant developed lots supply is 52% of what it was near its peak 10 years ago in Q3 2009.
The truly distressing news out of Phoenix is a dramatic rise in rents. Data from RealPage put 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, respectively. 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.
“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,” says Ryan Brault, Metrostudy’s regional director for Phoenix. “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.”
