Phoenix Multifamily YE 2021 Report & Interactive Construction Pipeline Map/Report
After four years of interest rates being firmly fixed at zero percent, in 2012, the Fed introduced the “Dot Plot” system into their arsenal of policy tools. The dot plot system allows the Fed’s eighteen members to communicate to the market where, they believe, interest rates will be now to several years into the future. As of December 15, 2021, two of eighteen Fed members believed the Fed Funds rate would be above 1 percent by year-end 2022 with all eighteen assuming rates will be above 1 percent, but not higher than 2.5 percent, by year-end 2023. For the longer-term outlook, only two of eighteen believe interest rates will hit 3 percent by sometime, anytime, after 2024.
Summary
- According to the BLS, Phoenix MSA was the 4th best performing Sun Belt metro in December, having not only gained back COVID job losses but reattaining peak employment.
- The Phoenix MSA continues to be a nation leader in year-over-year rent growth rising 24.3 percent to $1,601. This growth rate is nearly two times higher than the National average which increased 14.6 percent, but still $39 below the National average rent of $1,640.
- Occupancy maintained record highs increasing 120 bps over-the-year to 97.4 percent and besting the previous all-time occupancy high of 96.8 percent set in the late 1970s. This occurred despite delivering over 8,072 new units through YE 2021 and marks the 40th consecutive quarter that occupancy has been above the 20-year average of 91.6 percent.
- Given the current construction rate, 2022 should prove to be the highest delivery amount since 2009’s 9,315-units with 13,000 new unit deliveries. There are 34,542 units currently under construction throughout Greater Phoenix which marked the 31st consecutive quarter where the number of units under construction was above 10,000.
- Investment sales volume increased 150.8 percent over-the-year to its highest ever reading $13.797B, with average PPU (Price Per Unit) increasing 33.3 percent to $256,484.
Outlook – Opaquely Crystal
Total US non-farm payrolls increased by 199,000 in December, compared with the Dow Jones estimate of 422,000. The unemployment rate dropped to 3.9%, better than the expected 4.1 percent. Since May, U.S. non-farm employment has recouped 84 percent (18.790M) of the job losses stemming from Covid. The Greater Sun Belt area, including Phoenix, has generally recovered faster than the rest of the country with Phoenix, #4 in the Sun Belt, and along with DFW, Austin, Jacksonville, Tampa, Raleigh, and Savannah have reattained peak employment.
In August 2020, the Fed moved to essentially rewrite its mandate, i.e. letting inflation run higher than 2 percent which, at the time, untethered it from all historical regimes. Essentially, the Powell Fed bet they could ignite, and control, inflation in the meaningful, but manageable, 4 to 5 percent range. Less than two years later, Powell, coupled with the pandemic and all its deleterious effects, certainly managed to jumpstart inflation with the average, annualized, monthly reading of 6 percent throughout 2021. Inflation, now, is so high that we are running close to the hyper-inflation days of the late 1970s/early 1980s.
As John Mauldin, from Mauldin Economics, states, “one consequence of inflation is that it pushes “real” interest rates lower… If the Fed follows recent practice and raises rates a quarter point at each meeting starting in mid-2022, it might add up to a 1.25 percent hike by the end of next year….[and] will still leave negative real interest rates of -3 percent ... But would markets tolerate anything tougher? Probably not … Most obviously, higher rates would raise borrowing costs for the biggest borrower of all, the US Treasury. The debt has reached a size at which even tiny rate increases add big bucks to the government’s bill.”
Given that as a backdrop, it would seem continued Government and Federal Reserve interdictions in the market will not only continue, but accelerate, despite statements to the contrary. If that is the case, then would seem to me that we are much closer to negative interest rates, now, that at any point in our history. Since the 1950s, the Fed has had to adjust rates an average of 500bps lower during a recession and, according to the current ordering of dot plots, absolutely no one on the Fed sees short term rates rising above 3.00 percent.
Phoenix (and other MSA’s across the Sun Belt/Mountain West) Construction Pipeline Report YE 2021, click here to view the Interactive Map and download the report(s).
