Tuesday, January 18, 2011

W.P. Carey on 2011

Elliott Pollack writes for the W.P. Carey (Arizona State University’s School of Business) blog:

(highlights below, emphasis mine)

The national recession has been over for almost 18 months now. Are you having a good time yet? Normally one would expect a very vibrant recovery from such a steep recession. The fact is that this recovery has been painfully slow.

Despite that, we expect 2011 to be better than 2010, albeit modestly so, and 2012 and 2013 to be better than 2011. A rapid recovery and expansion, however, are probably not in the cards even though a recovery is underway.

. . .

Arizona Outlook

While housing is probably at or near its bottom, there are still many negatives and there is no quick fix for the slow growth in population that has caused population-driven sectors of the economy to literally implode.

. . .

Overall, the recovery is going to be slow in Arizona. While the state's recovery has started, one must understand how a state that has been one of the top five growth states every decade since the end of World War II has gone from second in terms of job growth to 49th (2009).

. . .

How did the state go from second to 49th? It was due to a combination of factors that were relatively unique. Nationally, there was a financial meltdown in credit at the same time there was an over-extended consumer. In addition, Arizona was one of the four major housing bubble states, and therefore had a significant excess of single-family inventory. All of this led to a large loss of consumer wealth both nationally and in Arizona, which caused people to cut back. In addition, given credit markets and the loss of equity in homes, it became difficult to sell a home and retire. The decimation of peoples' 401(k)'s and home equities also caused them not to retire and move to Arizona, as did the lack of jobs in the state. This also caused population flows to weaken dramatically. Instead of approximately 140,000 a year, population flows slowed to about 40,000, which equates to about the amount of births over deaths. As a result, home building crashed, going from 63,500 units in 2005 to about 8,000 in 2009. In addition, the decline in jobs caused negative absorption of apartments, office, industrial and retail properties, thus causing an excess for commercial as well. And, the slowdown in population growth caused all of those segments of the economy that are dependent on population growth to implode. This is something that has not happened before in Arizona.

Nothing too groundbreaking here – it’s been all downhill since 2005-6 but we might have turned a corner and could possibly start rising slowly in 2011 – I find it staggering to look at the sheer change in the numbers.  Do you think we could have used an extra couple hundred thousand new residents to help absorb the excess housing inventory?  How ‘bout construction being at about 12% of what it was?  Wow!

Your hoping these “2011 will be better” economists are right Realtor,

Chris Butterworth