According to the BLS, of all the U.S. Metropolitan Statistical Areas (MSAs) with over one million in population as of the 2010 Census (51 MSAs), Phoenix MSA was the 5th best performing metro in December, having gained back 85% of March/April’s job losses.
Despite previously reported minimal contractions in quarter-over-quarter readings due to Covid, as of year end 2020, the Phoenix MSA continues to be a nation leader in year-over-year rent growth rising 4.7% to $1,284. This growth rate is four times higher than the national average which contracted (0.8%), but still $178 below the national average rent of $1,462.
Occupancy rates continued their upward trajectory and increased 20 and 50bps over-the-quarter and year respectively to 95.6%. This occurred despite delivering 2,189 new units, slightly above the 3-year delivery average of 2,000 units. This marks the 36th consecutive quarter that occupancy has been above the 20-year average of 91.6%.
Given the current construction rate, 2021 should prove to be the highest delivery amount since 2009’s 9,315-units. There are 25,252 units currently under construction throughout Greater Phoenix, which marked the 27th consecutive quarter where the number of units under construction was above 10,000.
Investment sales volume significantly decreased over-the-year by 24% to $5.5B, with an average PPU (price per unit) increasing 19% to $192,356.
As the Covid-induced Idea Diaspora heats up, with both population and businesses—particularly financial services, tech and advanced manufacturing industries relocating away from the Gateway markets—Greater Phoenix is in a near perfect position to capture much of that movement.
While population counts for 2020 are yet-to-be released, current evidence suggests that over 2H 2020 Phoenix’s growth rate increased nearly 25% to +/-260 new residents per day. If this holds true, Phoenix will need an additional +/-3,000 units just to accommodate the extra population growth. Considering our current housing deficit of +/-32,000 units, market equilibrium is not foreseen in the near-to-medium terms.
Beginning at the end of 2017, after nine years of numerous interventions, the Federal Reserve attempted to return to more normal market operations by reducing its balance sheet in what become known as Quantitative Tightening (QT).
By the end of 2018, the S&P 500 was down 6.2%, IG (Investment Grade) bonds down 6.4% and the 3-and 5-year UST yield inverted for the first time in a decade. Lesson, it is much easier to run into something than extract yourself out.