Dismal economic outlook for '09 at Westmarc meeting
by Carrie Watters - Jan. 28, 2009 12:15 PM
The Arizona Republic
Anyone who headed to Westmarc's annual economic forecast breakfast Wednesday morning hoping for a pep talk likely walked away disappointed, or downright depressed.
Valley economist Elliott Pollack told the crowd of business, education and municipal leaders who gathered at the Glendale Civic Center that 2009 will likely be termed a bad year or even a terrible one.
"Those are the options," Pollack said.
The gist of the problem, he said, is that in the first six years of this decade, 10 years' worth of housing was built. The last four years will be spent eating that excess until some equilibrium is reached.
Add in the national economic slowdown and credit crunch and it's a rough ride.
The Valley has 20,000 to 40,000 excess homes to absorb, which could take a while - Pollack estimated that last year, only about 3,000 were absorbed.
"Until we work off that oversupply, we've got nowhere to go. It's that simple," Pollack said.
In a Valley so dependent on growth to fuel its economy, building permits are down 90 percent from the peak. Realtors struggle, construction crews feel the slowdown and furniture showrooms are pinched.
"All of this stuff ripples through the economy," Pollack said.
The Valley now ranks 28th out of 32 major employment markets in the country, areas with 1 million or more jobs.
"Cleveland is doing better than we are," he said.
Pollack said recovery would be slow but that 2009 will be better than last year and that the area, in the long term, will rebound.
But for now, it's time to buck up.
"No one will be spared," he said. "You can't have an economy like this and get away with it."
Here's a look at some of the bleak economic indicators:
84.2 percent of the Valley's economy has declined. The 15.8 percent continuing to grow is in education and health care.
A dwindling number of people are moving to the area. If anything, Pollack said, a 1.8 percent growth prediction for 2009 may be too high.
Power company APS is showing the slowest growth in new hook-ups in 50 years, with the biggest slowdown in Surprise and Avondale.
Nationally, a third of homes sold in the past 12 months were sold at a loss. Of those, 19 percent were foreclosed homes. Of homes purchased in the past five years, 41.8 percent have negative equity.
Valley home prices are down 32.5 percent, and they're not done dropping. One of the few benefits is increased affordability. In 2006, Pollack estimated 22.8 percent of Valley families could afford a median priced home. In 2008, that jumped to 72 percent.
Last year, 603,112 square feet of office space were absorbed, but 3.4 million square feet were built and opened. An additional 3.1 million square feet are under construction. Pollack predicted nothing more would be built for another two or three years.
Retail sales declined 10 percent in 2008 and are expected to drop another 4 percent his year. Pollack predicted that should climb 5 percent in 2010.
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