Comments

Maricopa County's population growth of 115,000 per year between 2000 to 2008 inclusive (3.3% per annum growth rate) compared to permitting growth in the same period of 9.67% per annum on median permmitting activity of 43,800 per year. This created an overhang of housing units at the end of 2007 equal to 108,000 units.

Admittedly, that overhang comprises some legitimate second-home activity in addition to the more common speculative investment buying activity. IF it is safe to assume that only half of that 108,000 housing unit overhang is sold back into the market (54,000 units), it would take 1.9 years to fully absorb that inventory if (i) you had no new permitting activity and (ii) forward-looking net population growth remained equal to or greater than the 2000 to 2008 average of 115,000 people per year.

On this basis, if we did not also have to consider the anomoly in credit-based foreclosure activity in the primary home sector, the County could expect to fully absorb the overhang by the end of 2011 and natural population growth would drive permit activity for 28,000 units by 2012.

This date moves forward to 2014 IF the market is forced to absorb 100% (vs. my 50% assumption) of the second home/speculative investment overhang created between 2000 to 2005 inclusive.

The numbers I don't have a feel for are the unnatural overhang being created by the credit deterioration-motivated foreclosures of primary residences. Perhaps their is someone in your community that can credibly opine on the timeline expectation for absorbing primary residence foreclosure units back into the market. My guess is that when you combine the speculative inventory overhang of 54,000 units (at 50% reintermediation to the market) with primary home unit foreclosures in excess of a normalized rate, that you are looking at year 2015 before the market will support 25,000 new permits.

Tom's analysis is very logical, and his conclusion is compelling. Tom pointed out a number of unknown variables. I would add to that list the degree to which the current sales of bank owned homes are being purchased by non-occupant investors. Until these units are rented or sold to owner-occupants, they remain part of the excess inventory.

In general I believe that producing meaningful building permit forecasts for the next several years will be difficult at best due to the uncertainty surrounding most all of the key drivers of new housing. What is clear is that the level on new housing activity in the Phoenix market will remain well below the level of the previous 5 year period for at least the next 5 years.

I agree that the next 5 years new home permits for SFD activity will certainly remain below the previous 5 year period. This is certainly attributable to the unprecedented number of foreclosures in the Greater Phoenix metro area. However, it appears that record price declines, historically low mortgage rates, FHA loan availability, and the new $8,000 first-time homebuyer tax credit are all helping move some prospective buyers off the sidelines. Pending home sales for the month of March 2009 increased from February 2009.

As to the question poised by Frank Owens, when can we expect the market to produce at least 25,000 SFD permits in Phoenix. I agree with JD in that historical data will not prove as useful, in the short-term, as it may have in the past to extrapolate and forecasts future housing activity.

For the sake of being bold, I will wing it and predict that we will exceed 25,000 in the year 2012.

Though question. First of all, historically metro Phoenix had quality reasons to live there. This has changed due too the sprawl (Maricopa, not the county). Quality of life does not exist in places like Pinal County. The planning in those parts have been reduced to ugly 3.2 du/ac and Walmart. The reason I stated this is it plays into the question posted. It impacts demand side of the equation. This is the real driver to answering the question. We all know there in large quantities of supply from REO homes, P/E lots, finished lots, raw dirt to meet any kind of demand.

So answer this why move there or stay there?