Greater Phoenix Blog

Slowdown in real estate a blow, but not knockout

Chad Graham
The Arizona Republic

The national chatter over the flailing home lending industry and its effect on the U.S. economy became more heated this week than an Anna Nicole Smith memorial service.

With the jump in foreclosures, predictions quickly gravitated to a "mortgage apocalypse" scenario where more than a million Americans fall behind on payments and lose their homes. Whispers of an ensuing recession in the United States rattled world equity markets.

Still, it’s not time to call the Four Horsemen to Arizona.

"Is recession a possibility? Sure. Is recession a certainty? No," said Dennis Hoffman, an economics professor at Arizona State University.

"It is simply fair to say that the risks of recession are higher today than they were six to 12 months ago, probably somewhere between 1-in-3 or 1-in-4."

Those are still low odds. So far, housing market shakiness is only cooling Arizona’s economy a bit in 2007.

For example:

• We’re spending less money. Sales-tax collections in January rose a disappointing 1 percent due to a lackluster holiday season. Revenue for the month was $7 million below the June 2006 forecast, according to the Joint Legislative Budget Committee.

The uncertain real estate market should continue to curtail consumer spending, particularly on home improvement items.

• Retail jobs are slowing. Arizona lost nearly 40,000 retail jobs in January. While that was blamed on post-holiday layoffs, employment growth in that category has been anemic for months, mirroring a national trend, according to Austin Litvak, associate economist at Moody’s Economy.com.

In metropolitan Phoenix, the sector "has fallen from about 9 percent during the later half of 2005 to about 5.5 percent currently," he said.

• Residential construction jobs are stalling. During the past year, construction accounted for 21 percent of all new jobs created in Arizona. Yet a drop in new housing permits is drying up some work.

Last year, the industry created more than 22,000 jobs. Between December 2006 and January 2007, it lost 4,400, according to Arizona Department of Economic Security data.

• Income growth could taper slightly. "We expect that as commission incomes fall in real estate-related jobs and as jobs are cut in construction and real estate-related sectors, personal income will slow significantly," wrote University of Arizona economist Marshall Vest in a December report. He also predicted that wage growth would drop to about 3.5 percent from 6.1 percent.

Compared with what’s happening in other areas of the U.S., those are not dire developments.

Auto-industry ills and an anemic housing market led Comerica Bank to recently proclaim that Michigan was stuck "in a one-state recession."

That state recently joined Mississippi and Louisiana as places that led the nation in late mortgage payments. Arizona ranked 40th in that measure, and there is no proof yet foreclosures will rise anywhere near the late 1980s, when the bottom fell out of the real estate market.

Economists argue that Arizona’s economy, while still heavily dependent on construction, has diversified recently.

Business services, finance and insurance sectors have grown quickly, said Hoffman, adding that a continuing population boom should grow health care and other related services.

Litvak said, "I would still expect Arizona to remain one of the fastest-growing economies in the nation despite the housing slowdown."

 

 

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Tags: Scottsdale, Phoenix, Real Estate, Mortgage, Realtor, Relocation, Homes, Listings, MLS, Scottsdale Real Estate, Phoenix Real Estate

Peter Corbett
The Arizona Republic
Mar. 17, 2007 12:00 AM

Custom-motorcycle builder Roger Bourget says he isn’t having any second thoughts about paying $3 million for his condominium overlooking the hottest corner at Kierland Commons.

The recent sale of the 2-year-old condo is believed to be the highest price paid per square foot for a Valley condo.

The 2,800-square-foot corner loft sits atop the Bebe clothing shop and looks out toward the sidewalk cafe of Zinc Bistro, where wine flows and patrons watch fashionable passers-by.

"It’s a little spendy," said Bourget, 49, owner of Bourget’s Bike Works, "but I believe that in the long run this stuff is going to go up in price."

The sale at Kierland Lofts raised eyebrows, but the unit is not even among the most expensive of 10 condos in the Valley that sold for more than $2 million in the past 13 months.

That distinction goes to a 4,500-square-foot penthouse in Landmark at Kierland, which sold last week for $3.17 million, said Shaun McCutcheon, an analyst for the Sullivan Group Real Estate Advisors in Scottsdale.

An additional 49 condos, from $1 million to $2 million, sold during that time, McCutcheon said. That is more than $80 million in sales from just 60 condos.

McCutcheon said that 40 other condos priced at more than $2 million - and a few at more than $3 million - are expected to close escrow in the next few months in downtown Scottsdale as Scottsdale Waterfront and Optima Camelview complete their top-floor units.

"We’re probably going to see more aggressive prices funnel in," he said.

The next benchmark to fall could be $4 million as Waterfront sells its penthouses.

What’s driving the steeper prices?

Some buyers are downsizing from those big homes on estate lots. Some like the energy and entertainment options at Kierland, downtown Scottsdale and at the Biltmore.

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Tags: Scottsdale, Phoenix, Real Estate, Condos, Homes, Luxury, Realtor, Paradise Valley, Shopping