Arizona’s favorable business environment coupled with an affordable real estate market continues to attract businesses from around the globe. Caterpillar Inc. recently announced its plan to establish a new surface mining and technology office in Tucson. The project is expected to generate hundreds of jobs over the next five years with a multimillion-dollar impact in Southern Arizona. Retiring baby boomers and Canadians are flocking to the state, supporting the state’s job and real estate market. We expect Arizona’s economy to outperform the U.S. average with the rising business expansion and consequent population growth.
The Phoenix metropolitan area added more than 66,000 nonfarm payroll jobs between March 2015 and March 2016. Consequently, the region’s unemployment rate fell to 4.7 percent by March 2016. Favorable job growth has encouraged in-migration propelling the area’s total population up to 4.5 million. In 2015, the area added over 78,000 new residents, who accounted for more than 85 percent of the Arizona’s population growth for the year. Many businesses are expanding their footprints in the Phoenix area with a growing labor force. Orbital ATK, one of the world’s leading aerospace and defense technology firms, is adding 60,000 square feet to the existing satellite manufacturing facility in the Gilbert area. The project is expected to add more than 155 high paying jobs over the next five years to the state’s $38 billion aerospace and defense industry. A $3.5 billion global manufacturer, Carlisle Companies Incorporated, is relocating its North Carolina based Corporate headquarters to Phoenix in 2016Q2. The move is bolstering business confidence in the area.
The Phoenix real estate market is firming up. The steady influx of transplants from California and elsewhere is supporting residential construction activity. The area saw a 25 percent increase in the total housing starts mostly fueled by single-family starts in 2016Q1. Home sales grew by 37 percent year-over-year in the first quarter. However, multifamily housing starts declined in the consecutive two quarters starting in 2015Q4. Multifamily apartment permits also declined by 25 percent in 2015 compared to a year ago. Home prices grew as high as 10 percent in the second half of 2015, faster than personal income. The mismatch between income and home price growth indicates a tight housing market with declining affordability. There are anecdotal stories of a shortage of construction workers to accommodate the demand for residential construction in the area. We expect home prices to appreciate around 7-10 percent in 2016 to accommodate the growing population in a tight home inventory environment.
Click here for the complete Phoenix Regional Economic Update: Phoenix 2016Q2.