Slowing Job Growth and Softening Rental Market Conditions in the Tucson HMA

Slowing Job Growth and Softening Rental Market Conditions in the Tucson HMA

HUD's Comprehensive Housing Market Analyses provide information on changes in local economies, housing markets, and populations and provide 3-year forecasts for demand in the area. This article is part of a series that sheds light on the content of these analyses.

The Tucson Housing Market Area (Tucson HMA) in southern Arizona is coterminous with the metropolitan statistical area of the same name and includes Pima County. The city of Tucson is the second most populous city in Arizona, with a population of 547,200 as of July 1, 2023 (U.S. Census Bureau population estimates). The HMA's population is estimated at 1.07 million as of December 1, 2024. Population growth in the HMA has decelerated slightly from the elevated levels during the late 2010s, largely because of the negative impact of the COVID-19 pandemic on the increasingly large share of retirement-age residents that moved into the HMA. Since 2020, the HMA's population has increased by an average of 6,325, or 0.6 percent, annually, with net natural decline (resident deaths greater than resident births) averaging 1,700 people annually and net in-migration averaging 8,025 people annually. By comparison, the population increased by an average of 10,050, or 1.0 percent, annually from 2017 to 2020, the result of both net natural increase (resident births greater than resident deaths) and net in-migration. A recent Comprehensive Housing Market Analysis highlighted the Tucson HMA and reflects local conditions as of December 1, 2024.

Job growth in the Tucson HMA continues beyond COVID-19 recovery, but at a slower pace than the national rate.

The economy of the Tucson HMA is stable, although job growth slowed in the most recent 12 months as expansion beyond prepandemic levels moderated. Nonfarm payrolls in the HMA increased by 3,800 jobs, or 0.9 percent, to 404,600 during the 12 months ending November 2024. Nonfarm payroll levels during this period were 3.6 percent higher than during a comparable period in 2019 but lower than the national increase of 4.7 percent. By comparison, nonfarm payrolls during the 12 months ending November 2023 increased by 6,300 jobs, or 1.6 percent.

The government sector, the largest nonfarm payroll sector, has long been the foundation of the Tucson HMA's economy, currently accounting for 19 percent of total nonfarm payrolls. The sector includes three of the top five employers in the HMA: namely, the University of Arizona (UA), the Davis-Monthan Air Force Base (AFB), and the state of Arizona, employing a combined 38,200 people. However, the sector has struggled to grow over the past 15 years because of declines in the local and state government subsectors, and it has yet to fully recover to 2019 levels.

The Tucson HMA experienced job growth in 6 of the 11 payroll sectors during the 12 months ending November 2024. Leading this growth was the education and health services sector, which accounted for approximately 55 percent of total job gains during the period, increasing by 3,600 jobs, or 5.2 percent. The mining, logging, and construction sector increased by 900 jobs, or 4.0 percent, because of increased housing subdivision construction activity and expanding construction on Interstate 10. The government sector declined by 600 jobs, or 0.8 percent, in part because of a hiring freeze and staff reduction at UA in the first half of 2024.  

During the next 3 years, nonfarm payrolls are expected to increase by an average of 0.6 percent annually to 411,400 jobs. Increased demand for healthcare services from a growing share of residents aged 65 and older will support growth in the education and health services sector, and construction on the new $425 million Mosaic Quarter sports and entertainment complex, begun in November 2024, will support growth in the mining, logging, and construction sector.

Elevated mortgage interest rates and a limited inventory of for-sale housing contributed to declining home sales, while elevated apartment construction activity and low apartment absorption caused apartment vacancy rates to rise.

The home sales market in the HMA is currently balanced, with an estimated vacancy rate of 2.0 percent as of December 1, 2024, up from 1.7 percent in April 2020. Although home sales reached a recent peak during the 12 months ending January 2022, increased mortgage interest rates since March 2022 have diminished sales demand. The inventory of homes for sale remains low, however, as many sellers refrain from listing their homes for sale if a subsequent purchase would require financing at a higher rate. The interest rate for a 30-year fixed mortgage averaged 6.8 percent in November 2024, down from 7.4 percent a year earlier. The total number of active listings in the HMA averaged 5,275 homes per month in the 12 months ending November 2024, higher than the 4,475 average a year earlier but less than any year before 2021 since 2007 (Cotality). Limited inventory prompted continued home price growth despite declining sales. During the 12 months ending October 2024, home sales declined 4 percent to 18,200 homes, compared with a 30-percent decline a year earlier. During the same period, the average home sales price increased 4 percent to $398,500. Sales construction activity recently increased because of continued price growth and limited inventory. During the 12 months ending November 2024, 4,350 new homes were permitted, up 42 percent from the previous 12 months. During the next 3 years, demand is estimated for 11,500 new homes.

The overall rental market in the HMA is slightly soft, with an estimated vacancy rate of 9.4 percent, up from 7.7 percent in April 2020. Rental construction activity during 2022 and 2023 reached levels higher than any year since at least 2010; this, combined with low levels of apartment absorption from 2022 through 2024, contributed to softening rental market conditions. The apartment vacancy rate was 11.4 percent as of the third quarter of 2024, up from 8.7 percent a year earlier, largely because more than 2,400 apartment units were in lease-up (CoStar Group). The average apartment rent declined approximately 1 percent year over year to $1,177 as of the third quarter of 2024. Rental construction activity has declined significantly because of high vacancy rates and declining rents. Rental permitting decreased 48 percent from a year ago to 1,300 units during the 12 months ending November 2024, higher than the average of 1,150 units annually from 2017 through 2021. During the next 3 years, demand is estimated for 2,550 rental units.