Steady Growth in the Phoenix HMA as Area Attracts Many Business Expansions and Relocations

Steady Growth in the Phoenix HMA as Area Attracts Many Business Expansions and Relocations

As of July 1, 2020, the home sales market in the Phoenix Housing Market Area, which is located in HUD Region 6, was balanced with a sales vacancy rate of 1.3 percent. Home sales totaled 131,700 as of June 2020, which are relatively unchanged from a year prior.

HUD’s Comprehensive Housing Market Analyses provide information on changes in local economies, housing markets, and populations and provide three-year forecasts for demand in the area. This article is part of a series that sheds light on the content of these analyses.

The Phoenix-Mesa-Chandler Housing Market Area (Phoenix HMA) is located in south central Arizona and includes the counties of Maricopa and Pinal. The Phoenix HMA is home to nearly two-thirds of the population of Arizona with an estimated population of 4.91 million. Phoenix is the largest city in the HMA, the capital of Arizona, and the fifth largest city in the United States. A recent Comprehensive Housing Market Analysis highlighted the economic and housing market activity in the Phoenix HMA.

Strong Growth Attributed to Business-Friendly Environment

From 2011 through 2019, employment in the HMA grew by an annual average of 2.8 percent, outpacing the national average. Employment conditions were strong into the first quarter of 2020, when shutdown measures were enacted to slow the spread of COVID-19. The HMA experienced significant job loss from the impact of the COVID-19 pandemic. In the second quarter of 2020, nonfarm payrolls decreased by 5.1 percent in the area for a loss of 109,200 jobs, spiking the unemployment rate to 10.2 percent.

About 65,000, or 60 percent of the lost jobs were in the leisure and hospitality sector. The leisure and hospitality sector is the 5th largest employment sector in the Phoenix HMA, comprising 10 percent of employment in the area. The professional and business services sector is the largest employment sector in the Phoenix HMA, employing 365,500 people and accounting for 17 percent of employment in the area. Since 2011, the sector has steadily added jobs to the Phoenix HMA, growing at 3.8 percent annually. The report attributes this sector growth to the lower corporate tax rates in Arizona, which is enticing many businesses to relocate their headquarters to Phoenix. However, over the past year, employment in the professional and business services sector declined by 6 percent for a loss of 21,900 jobs.

The education and health services sector is the second largest employment sector in the Phoenix HMA, employing 340,700 people and accounting for 16 percent of employment in the area. The sector has been growing steadily to account for the HMA’s increasing population. Three of the top 10 employers in the Phoenix HMA are in the education and health sector, including Banner Health, which is the largest employer in the Phoenix HMA with 45,894 employees.

Over the next 3 years, nonfarm payrolls are expected to increase by 1.8 percent annually as business expansions and relocations continue in the HMA.

Declining Homeownership Rate as Population Growth Increases Demand for Housing

As of July 1, 2020, the home sales market in the Phoenix HMA was balanced with a sales vacancy rate of 1.3 percent. Home sales totaled 131,700 as of June 2020, which are relatively unchanged from a year prior. Existing home sales accounted for 84 percent of home sales during the period. Average home sales prices increased by 6 percent, and most of that increase was due to an increase in existing home sales prices. The COVID-19 pandemic has significantly impacted the housing markets, as buyers are cautious about moving and homebuyers are less inclined to attend open houses. In June 2020, new home listings declined by 12 percent compared to a year prior; and pending sales declined by 13 percent during the same period.

The rental housing market was also balanced with an estimated vacancy rate of 6.5 percent in the area. Since 2015, average rent in the Phoenix HMA has increased by an average of 7 percent annually. In June 2020, approximately 11,400 permits were issued for new rental units, which is a 51 percent increase from the year prior. Rising rents and quick absorption have incentivized high levels of apartment construction.

Over the past year, the Phoenix HMA homeownership rate was 64.4 percent, which is lower than the national rate of 67.4. The homeownership rate has been declining in the Phoenix HMA since 2012. The population growth has used up the excess inventory in the area and the growing demand for housing has put upward pressure on home sales prices, decreasing affordability in the area.

Over the next 3 years, demand is expected for 58,650 new sales units and 18,800 new rental units. For more detailed information, please see the Comprehensive Housing Market Analysis on the Phoenix HMA.