Phoenix is growing again:
At the height of Phoenix’s excess, in 2005, homebuilders were constructing 4,000 homes a month, bulldozing one acre of land every hour. By 2008 the city was the epicenter of the country’s housing market crisis. Prices rose more precipitously and fell faster than most anywhere else. It was among the most overbuilt of the overbuilt sand cities, optimistic right up until the collapse. Home values fell by 55 percent from 2006 to 2011.
Today the city finds itself in a more encouraging situation, one that’s becoming more common around the U.S. Housing prices in metropolitan Phoenix climbed 22.9 percent in 2012, the highest in the nation, according to research firm CoreLogic. Homebuilders are rushing to buy land for new subdivisions or resume construction in ones they had abandoned.
Phoenix’s nascent boom has many causes. The city has long counted on jobs to lure home buyers: The population of the Valley of the Sun has nearly doubled since 1990 and is now close to 4.3 million. Job growth was 3 percent last year, almost twice the national rate. There’s another reason prices are going up: Inventory is low. During the bust, foreclosures went on the market quickly, and eventually prices fell enough that investors with cash came in. They turned many homes into rentals, which meant fewer for sale. Meanwhile, underwater owners are hoping for prices to rise before they sell.
The housing market in Phoenix presaged and magnified the collapse in real estate. Now its recovery could reveal much about the prospects for a nationwide turnaround. Mortgage rates are low everywhere. In many places, so too is inventory. Home prices increased in 88 percent of metropolitan areas around the country in the last three months of 2012, including Las Vegas, Miami, and even Detroit, according to the National Association of Realtors.
“Phoenix is the most advanced market,” says Stan Humphries, the chief economist at real estate website Zillow (Z). “It was one of the first to go into recession, and one of the first to emerge from recession. Phoenix has been a lab where we’ve gotten to see the effects of a high foreclosure rate and high negative equity,” which is when homeowners owe more on their mortgage than their houses are worth.
Of course the recession in Phoenix that began in early 2006 had little to do with the (severe phase of the) national recession, which began in mid-2008. Indeed 2007 was a period of very low unemployment for the national economy. And as long as NGDP keeps chugging along at 4%, a housing recovery in AZ will not produce a national recovery, as the problems are unrelated. It’s the difference between microeconomics (allocation of resources for a given aggregate output) and macroeconomics (determination of nominal and real aggregate output.)
Starting last March, builders realized they had a problem: Demand was growing faster than their supply. That’s provided opportunities for land brokers such as Nate Nathan, who’s been handling land acquisitions for investors, developers, and homebuilders in Phoenix for 36 years. Nathan has sold 14,000 lots in the past eight months, a billion dollars’ worth of deals. An acre in the southeastern part of the valley, where Intel and other companies are based, sold for $35,000 in 2010. Now, he says optimistically, a prime acre can go for more than $200,000. “I’ve lived through five downturns, and this has been the best goddamned eight months of my life,” he says.
But wait, didn’t the bubble-mongers tell us Phoenix had to be a bubble? After all, look at all that empty desert land in Arizona. There was no “rational” reason for high land prices. Yes, but try finding land in good locations (close to Tempe/Paradise Valley) that is not currently occupied by either Indian reservations or the federal government. It’s expensive. Arizona is not Texas.
PS. This is interesting:
Group of 20 policy makers discussed a broad rethinking of monetary tools at their meeting in Moscow last week, including strategies to support growth by targeting nominal gross domestic product, Russia’s envoy to the G-20 said.
A proposal for the monetary authorities to adopt a target of nominal GDP, aired by Bank of England Governor-designate Mark Carney in December, was discussed on the sidelines of the G-20 meetings, said Russia’s G-20 sherpa, Ksenia Yudaeva. Russia holds the group’s rotating presidency this year.
“Maybe it’s an appropriate instrument for developed countries with reserve currencies, but for developing and small economies, it absolutely doesn’t answer their problems,”Yudaeva said in an interview in Moscow.
I agree that NGDPLT may not be appropriate for small and/or emerging economies that are relatively undiversified.
From market monetarist blogs to the G-20 in 4 years. Not bad.