REAL ESTATE OUTLOOK aRizona Real eState: EXPERTS’ FORECAST Malcolm MacEwen, president and chief operating officer, Coldwell Banker Residential Brokerage, Arizona: “With the underpinnings of a strong housing recovery the past 18 months, it is no surprise to learn from The Standard & Poor’s/Case-Shiller 20-city home price index that the largest gain in the nation was in Phoenix, where prices jumped nearly 23 percent in the last year. Arizona prices are being pushed higher by rising sales and a tighter supply of available homes. Arizona’s housing future is bright.”
Elliot Pollack, CEO, Elliott D. Pollack & Company: “The residential market continues to improve. The excess supply is dwindling. While population flows are still way below normal, demand is increasing. The result, higher resale and new home prices, helps the economy because fewer home owners are under water and people feel better off (the wealth effect). These positive trends should continue over the next year and beyond.”
in new rental projects. Last year construction commenced on nearly 4,000 units, and ASU’s Blue Chip Forecast predicts over 5,500 permits in 2013 and nearly 7,700 units in 2014. The rental multifamily market has seen a flurry of new construction activity in the past 18 months and this trend is likely to continue. There are currently more than 18,000 rental units in the development pipeline across the Valley, including projects in various stages of planning or currently under construction. Most of these projects are concentrated in land-constrained, high-barrier entry submarkets and feature higher density “urban” product. Gen Y renters are attracted to innovative rental properties in prime locations with urban amenities. Several sizeable privately developed student rental communities coming on-line near ASU have added to the dramatic ramp-up of supply. Despite the recent run-up in new units delivered to the market, rental vacancy rates have fallen from over 10 percent in 2010 and 2011 to under 8 percent by the end of 2012. In large part the vacancy decline can be traced to the single family foreclosure crisis, as former homeowners became renters of both rental single family homes and apartments. Th is downward trend is expected to continue to the mid 6 percent range as demand generated by rising employment levels out paces anticipated supply growth. With interest rates at historic lows, developers can stabilize a completed project with permanent financing in the low 3 percent range, unheard of during the last up-cycle. Investment yields for high-quality rental apartments in core locations are currently in the sub 5 percent range. Typical development densities in these locations have increased to 35 units to 50 units or more per acre as apartment land prices have soared. Th is infi ll activity will continue to be seen as renter demand for prime infi ll locations intensifies and interest rates remain low. We do foresee a shift of development activity in favor of the suburban West and Southeast Valley submarkets such as Peoria, Gilbert and Chandler over the next few years, where multifamily densities of 25 units per acre range are more typical.
Real eState outlook
The worst is behind the metro Phoenix economy and housing industry. The precipitous employment and housing activity declines and pricing correction that resulted from the housing bust have taken roughly five years to reverse and regain at least part of the lost ground. Land transaction volume and pricing has re-traced much of the recessionary losses, and housing prices are poised to continue to recover for the foreseeable future. The peak house prices of 2005-06 will not likely be seen during this cycle, but the most sought after submarkets may approach those 52 AB | May-June 2013
Matt Widdows, CEO, HomeSmart International: “2013 will be the year of the ‘normal’ transaction recovery. More traditional sellers will enter the market as they look to upsize and lock in all-time-low interest rates; new homes will see their first good year of starts in a while; and land will continue to get gobbled up in places that were all but abandoned during the Recession. All in all, 2013 will be the continuation of a steady recovery ... as long as our elected officials don’t screw it up.”
levels. The rental multifamily market is and will continue to be an investor focus, with declining vacancies and appreciating rents. Apartment construction activity is ramping quickly in response to employment-driven demand and will soon be spreading from core urban submarkets to higher quality suburban locations. Steve Pritulsky has more than 25 years experience in real estate economics, residential real estate development, investment and valuation. Steve has been a member of the Metro Phoenix Blue Chip Forecast Panel for more than 20 years. He is a leader in the Land Advisors Capital Scottsdale-based private equity practice, focused on advisory services and sourcing equity investment in homebuilders, land and lot develop and master planned communities.
“THE MOST TRUSTED NAME IN THE LAND BUSINESS” Largest holdings of 50-1,200 acre parcels in metro Phoenix.
Vermaland (602) 274-0700 www.vermaland.com