It's Hard not to be Optimistic about Housing
By Elliott Pollack
Virtually every sector of real estate will be improving through 2014, according to the Greater Phoenix Blue Chip Real Estate Consensus panel. The issue for each sector is how quickly the improvement will occur. For single family, the outlook is bright according to the panel. The consensus forecast calls for slightly over 12,000 units in 2012, 18,300 units in 2013 and over 25,500 units in 2014. Those imply huge percentage gains. Should those numbers come to fruition, it implies gains of 92%, 51% and 40% respectively in 2012, 2013 and 2014. For 2013, except for one outlier forecast on the down side and one outlier forecast on the upside, there?s a tight forecast range of between 15,000 to 20,000 units. For 2014, all but two of the forecasts call for 20,000 units or more and four of the total forecasts call for 30,000 units or more. These forecasts suggest substantial improvement in the outlook for single family housing and imply that Greater Phoenix will start approaching its long term trend line in 2014.
As for apartments, vacancies are expected to decline from 7.6% in year end 2012, to 6.8% at year end 2013 and 6.3% at year end 2014. This is despite a permit level of 5,700 units next year and 8,000 in 2014. The decline in vacancy occurs because of continued strong absorption next year and in 2014.
Improvement in office activity is expected as well, although stability in the office market is still years away. Vacancy rates, which are expected to be 23.8% at year end 2012, 21.9% at year end 2013 and 20.1% at year end 2014 clearly show improvement. But, by the end of 2014, vacancy rates are still expected to be well above levels that have been associated with increasing rents. The improvement is because absorption, which is estimated to be 1.85 million square feet next year and 2.2 million square feet in 2014, exceeds a very low level of anticipated construction. Thus, while the office market will be improving, it will still have a long way to go by the end of the forecast period.
The same is true with retail, where vacancy rates are expected to be 11.9% at the end of 2012, 11.1% at the end of 2013, and 10.1% at the end of 2014. Again, this is because absorption exceeds new construction. Vacancy rates, though, would still be relatively high at the end of 2014 suggesting that that market would not yet have fully adjusted.
As for the industrial market, vacancy rates are expected to come down from 11.9% this year, to 11% next and 10.2% at year-end 2014. Construction is expected to pick up in 2013 and again in 2014, but absorption is expected to be strong as well.
Thus, it?s clear that the housing market is adjusting more rapidly than the commercial markets. It?s hard not to be optimistic about single family. The apartment markets should remain strong, while improvement continues in the office, industrial and retail markets, albeit, at a slower rate.
View the Phoenix Real Estate Forecast Tables