Last week we launched the first Great Regional Debate, which showcased key opportunities for housing market success in Florida and the Southeast. This week we highlight some of the key markets in the West.
Phoenix is a job magnet. The region’s growth has barely paused during the pandemic, with 79,000 new jobs in August. Many of those jobs are coming from businesses either exiting high-cost states or targeting Phoenix for their expansions, especially in industries like e-commerce, logistics, and manufacturing.
While other markets in the country are registering double digits, the unemployment rate in Salt Lake City is less than 5% today! The market’s diverse job base includes tourism, health care, government, education, manufacturing, and technology. Salt Lake City’s Silicon Slopes are home to some of the biggest tech giants in the country, including Adobe, Oracle, and Microsoft.
Southern California’s Inland Empire has an improving job base, although this varies greatly by sector. Residential construction is booming. The massive growth in the distribution and logistics sector has slowed but appears poised to ramp back up. Northern California has experienced some tech “flight,” but the major tech employers have remained within shouting distance of the mother ship in Mountain View, Cupertino, or Redwood City.
Advantage: Phoenix and Salt Lake City
The Housing Market
Phoenix is one of the most generationally diverse housing markets in the country. Entry-level and move-up buyers started the trend in Phoenix with in-migration from expensive California markets. Add the active adult buyer, and Phoenix is now one of 12 housing markets we rate as Very Strong. Our September survey determined that year-over-year (YOY) new home prices were up 10% in Phoenix (the national average was 8%), and actively selling new home communities averaged better than 6 sales per month.
The Great American Move has been a huge boon to Salt Lake City, and as of September, new home prices were up an astounding 13% YOY, the highest rate in the nation. And builders are realizing these types of home price increases while they artificially restrict supply because they just can’t keep up with demand. Home price increases are putting pressure on affordability, and some long-time locals are considering more attainably priced homes in places like Boise, Idaho.
The Inland Empire’s housing market is the strongest in Southern California, accounting for about half of all new home sales in Southern California. Home builders are attracting buyers from higher-priced coastal regions looking for value, and the work-from-home trend is accelerating the growth. At $479,000 today, the median new home price in the Inland Empire is only about half of what it is in Orange County. The work-from-home phenomenon is only accelerating the growth. Builders are selling homes at the fastest pace in over five years, at average of 5 to 6 sales per project per month.
In Northern California, the need for more space and affordability is propelling the Central Valley into one of the hottest new home markets in the nation. In places like Fresno, Merced, and Manteca, new home builders are experiencing soaring year-over-year new home prices with supplies that are running low. Builders in Sacramento are experiencing a similar boost from Bay Area buyers who don’t have to return to their offices anytime soon.
The Rental Market
The apartment market in Phoenix experienced some of the highest level of new construction in the last 5+ years, but demand more than kept pace with construction, leaving very little overhang when the pandemic hit. The build-for-rent industry that was largely created in Phoenix continues to grow with new innovations in horizontal apartment and townhome style offerings.
Elsewhere in the West…
Salt Lake City’s average asking rent has increased by more than 4% annually over the last five years. Occupancy rates haven’t moved much despite the increases, still hovering just below 95%.
It is still more affordable to rent an apartment in the Inland Empire than to purchase an entry-level single-family home, and average annual apartment occupancy hasn’t dropped below 96% since 2012.
The Western markets have some great runway ahead of them, with the key markets we’ve highlighted commonly linked by either great job bases or the ability to access them when needed, relative housing affordability (when compared to higher priced coastal markets), and great lifestyle advantages as well.
While we think there are a ton of great places to live across the country, some of us on the West Coast are pretty partial to these markets. We suspect our friends from Texas might have a response in the next couple of weeks.
Vice President, Consulting
Salt Lake City
Senior Manager, Consulting
Vice President, Consulting