Phoenix is rising. The Arizona capital is on the rebound, thanks in part to the healing housing market that was among the hardest hit by the economic downturn.
Just ask Tom Sertich, president of Kirk Development Company, a custom design/build remodeling company based in Phoenix, who has seen an increase in business over the past year.
“People are starting to go forward with remodeling projects,” said Sertich. “They are more confident now that they have more equity in their home.”
Phoenix was at the epicenter of the housing slump. In March 2007, the median home price was just under $230,000, but when the housing bubble burst later that same year, the median home price was chopped in half over the next six years.
Now, demand for housing is on the rise in Phoenix, and it’s helping to push home valuations higher. Prices in Phoenix climbed 15.9% on the year in October, the fourth-largest gain among the 100 major metropolitan areas tracked by Corelogic, a research firm that provides financial, property, and consumer analytics.
When the housing market declines, as it did during the recession of 2007-2009, the economic impact ripples through local and national economies. Unemployment rises, consumer spending slows, and lending dries up, making it tough for new businesses to start and for existing ones to survive.
The good news is that there are indications that the housing recovery is finally on firmer ground, and not just in Phoenix. According to the National Association of Home Builders, housing investment registered its fastest annual growth rate since 1992 to account for 15.3% of the GDP in 2012, More recently, in the third quarter of 2013 housing’s share of the GDP was 15.6%, with home building accounting for 3.2 percentage points of that total.
The upswing in home valuations should spur more consumer spending, says Mark Fleming, chief economist at Corelogic. “Since housing is the largest item on Americans’ balance sheets, people feel wealthier when the value of their homes increases,” said Fleming. “As a result, they will spend more money not only on home improvements such as remodeling, but also on other things like dining out and buying higher-priced groceries. “
More consumer spending can result in more job creation. In Phoenix, the housing market recovery has been creating jobs in the construction industry and elsewhere in the economy, says Chad Heinrich, vice president of public affairs and economic development at the Greater Phoenix Chamber of Commerce.
“A good sign that accompanies the gradual bounce back in the housing industry is that claims for unemployment insurance are also continuing to decline,” said Heinrich, pointing to the nearly 9% decrease in claims since September.
From October 2012 to October 2013, the Greater Phoenix Area has seen a 1.2% increase in construction employment, says Heinrich. In November, the state registered its biggest job gain in eight years. The Phoenix area accounted for the vast majority of 25,900 jobs added—many of them in retail, restaurants, and hotels.
Still, Corelogic’s Fleming says Phoenix’s current housing recovery will likely look different from others in the past, in part because some homes are still worth less than what the owners originally paid for them. “People used to just move equity from one house to another. Now, for those homeowners who are underwater, they don’t have enough equity for a down payment on a new home.”
As a result, Fleming expects a lot of Phoenix homeowners will stay put and spend their money on remodeling. “The choice to renovate will be more attractive than moving. I expect that stores like Home Depot, Lowes, etc., will benefit from the boom,” he said.
As will Sertich, who agrees that more Phoenix homeowners will renovate rather than move since home values remain below levels seen before the bubble burst. But, he adds, “It’s a good market. I think it’s ready to grow.”