With a nickname like “valley of the sun,” what’s not enticing about Phoenix? Sprawling, sun-drenched landscapes; a thriving epicenter of culture and entertainment; and a rich tapestry of Native American history all comprise the experience of visiting the U.S.’s fifth-largest metropolitan area. There is more to Phoenix’s charm than that, however. Shortly after Arizona received its statehood in 1912, the city became a bustling center destined for rapid growth. Originally purchased for $550, the 320-acre town site blossomed exponentially throughout the decades into the 500-square-mile metropolis that it is today.
With 20 unique communities, there is always something for everyone to do in Phoenix. Sports, recreation, dining – they all make the city an attractive habitat for a variety of house hunters and job seekers. Mild winters and a low cost of living further fuel migration into Phoenix, making it one of the fastest-growing job and housing markets in the nation. But it wasn’t always this way.
During the early 2000s, the height of Arizona’s economic salad days, low real estate costs and higher-than-average income levels created the perfect environment for investors and residents to maximize their ROI. A surge in Phoenix’s job creation prodded the city’s financial growth, instilling confidence in everyone who had money to spend that spending it was the way to go. Property values skyrocketed as the city became more attractive and “flipping houses” was a profitable endeavor for investors. Life was good.
But there was trouble on the horizon brewing quietly as households across the state sunk into debt in the mid-2000s. As the housing market became a hotbed of activity, homeowners borrowed heavily in order to get a piece of the action. And then, the floor fell out. After the sub-prime crisis and the collapse of Lehman Brothers, the economy tanked, dragging Phoenix home prices with it. Properties throughout the city were worth far less than the debt homeowners accrued for them. The year was 2007.
Anecdotal evidence points to much of the occurrences transpiring at the recession’s outset. “The home buying markets, as one could imagine, became insinuated with sellers. What was interesting to note was the simultaneous demand increase for home rentals, most especially in Arizona,’ notes Marc Holland, Operations Coordinator with Home Star Search, (an online resource of rent-to-own housing availabilities). “Much of the rental demand came from individuals underwater on their mortgages. After they decided to walk away, many of them became renters. Slowly, we’ve began to see that trend reverse.”
As Phoenix’s boom busted, jobs disappeared. Unemployment rates rose as home prices fell, and those who maintained employment saw a decrease in yearly income. Commercial development ceased, homes went into foreclosure, and the city – like an exaggerated microcosm of the nation – slipped into recession.
But like its namesake, Phoenix has experienced a rebirth in the last couple of years. Rising from its failed housing market is a renewed economy that promises a return to its former glory. The cost of housing is increasing gradually and investors are helping bolster the market’s economy by purchasing approximately 30% of the homes available. Plus, the elimination of easy credit has resulted in tougher financing restrictions that should limit home purchases to those capable of maintaining their mortgage obligations.
What does all this mean for the future of Phoenix? In light of the housing market’s collapse, the resilient city seems determined to define itself beyond its traditional roles of rapid growth and tourism. It’s an ideal location for new business; there’s plenty of inexpensive real estate and – true to its history – its ability to rapidly swallow the desert to create more space for development makes it highly accommodating for an influx of new workers. Boasting four consecutive months of job growth at the end of 2011, Phoenix’s economy ranked as one of the best in the West as well as in the Top 20 of all U.S. metro areas (according to a report released by the Brookings Institution earlier this year). The primary reason: an increase in manufacturing.
Phoenix’s growth engine will always be its remarkable quality, but its economy shouldn’t depend on it so heavily. The ability to quickly garner a workforce through increased population levels means nothing if there are no jobs for said workforce once it arrives. By continuing to attract new companies and focusing on new enterprises, Phoenix’s economy will grow, restoring the housing market to health through accelerated job growth and increased employment levels.
Jared Diamond is a guest contributor who writes on a variety of real estate and personal finance topics. diamond holds a B.S. in economics and has written extensively on housing markets in relation the the Great Recession.