Housing will be back as force for growth in 2016, Arizona economists say
Demographic factors that for years slowed down Arizona's housing industry finally seem to be turning in the state's favor, one of the reasons economic growth should keep chugging along in 2016, economists said Wednesday.
Scottsdale-based Elliott Pollack said Millennials and "boomerang buyers" are among the forces creating the best conditions for housing since the boom a decade ago. At the same time, the state continues to improve in attracting technology and finance jobs, offering a measure of higher incomes and greater diversity to the state's economy, said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W.P. Carey School of Business at Arizona State University.
The two were among a panel of economists presenting their projections at the 52nd ASU/JPMorgan Forecast Luncheon in Phoenix. They expressed confidence in a recovery that now seems less fragile, with their optimism tempered only by the usual uncertainty about national and global forces. "The conclusion is 2016 ... will be the best year yet for the economic recovery in Arizona," McPheters said. "The takeaway is there's no doom, no gloom but no boom."
Over the next year Arizona should see 5.2 percent growth in personal income, 1.5 percent population growth and 2.6 percent job growth, which would translate to about 68,000 additional jobs, he said. Employment growth will remain below the state's long-term average of 4.2 percent, but McPheters said the 2.6 percent growth likely will place Arizona among the top 10 states for job creation in 2016.
"What we're doing in terms of our historical average is we tend to be running about half-speed," McPheters said. "When you compare us to the nation as a whole, we're doing reasonably well." Pollack said the state's real-estate markets are experiencing healthy growth.
Millennials, the generation whose oldest members are in their mid-30s, are marrying, with many becoming first-time homebuyers. Younger members of the generation are leaving their parents' homes and creating strong demand for apartments. As they grow older and marry, life events will create even more demand for more single-family housing, he said. At the same time, many of those who left or lost their houses during the crash are newly eligible for federally backed loans again.
"The outlook for housing is quite exceptional, given the outlook for a post-2007 world," Pollack said in a nod to the housing crash. "The parade of horribles that have been affecting housing are almost all improving." The Phoenix area should have at least 15,000 building permits for single-family houses this year and at least 18,000 next year, Pollack said. Commercial real estate remains soft, but not in all parts of the Valley.
Arizona is expected to maintain its status as one of the faster-growing states in the nation, though other areas, many of them in the West, are doing better. The year ahead should finally produce enough jobs to replace the ones Arizona lost during the Great Recession, something the nation as a whole achieved by mid-2014.
Arizona has done especially well in financial services, professional and technical services and in adding data centers, McPheters said. All those areas pay more than typical Arizona wages. Still, population growth estimates to be released later this month are expected to confirm that Arizona is growing more slowly than in years past, mainly because residents of other states aren't flocking here as they did a decade ago.
However, the economy is not without its question marks. Charles Plosser, who served as president of the Philadelphia Federal Reserve Bank from 2006 until earlier this year, noted his continuing worries about how the Fed will soak up more than $4 trillion added to its balance sheet as the nation climbed out of the recession. "Are we sowing the seeds for another financial crisis?" said Plosser, who has warned of higher inflation for years.
Plosser said the economy is "pretty sound," a status that requires monetary policy to match. He called for the Fed to begin raising its benchmark interest rate, which has stood at nearly zero percent for seven years.
The recent interest rate hike confirms this. James Glassman, a senior economist for JPMorgan Chase, said financial markets are ready for the rate hike."The market gets the idea that rates need to go back to something more normal," he said.