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It looks like our economy is in dire straits for a few more years to come.  According to this December 2, 2009 article below by Mike Sunnucks of The Phoenix Business Journal, both our residential and commercial real estate markets are dead in the water until about 2013.  I’m the last person to want to spread bad news, but I think it’s important for all of us to understand where we stand so that we can take the appropriate action to move forward.  We in Arizona can’t be thinking that since we heard news of the recession ending it means that everything is going back to the way it was.  No, the mistakes we’ve made in the past have resulted in some very real, very serious consequences.  This news that  we’re definitely not out of the woods as far as our local economy is concerned is the kick in the butt we need to start anew, think differently and DO differently.

What are some ways we can jump-start our economy in AZ and circumvent this doom that the economists at ASU predict?  How about putting a moratorium on new building and looking at ways we can revitalize and rehabilitate existing buildings?  This not only makes economic sense but also makes sense environmentally.  We have a glut of existing homes and commercial buildings, why not make use of them over the next five years in innovative ways?  Why not think of them as a “natural resource” and leverage them in some way?  Instead of traditional leasing and selling of real-estate are there new models of  utilizing the existing building stock which is somehow profitable and responsible?  And can this new model be tied into a new way of living and working for people?  A good example of the innovative use of real-estate is Gangplank in Gilbert, AZ.  Gangplank offers co-working space free of charge to encourage people to
value working collaboratively with others.  Are there other ways, other needs we can address with the existing building stock?

Not only is our current model of leasing and selling real estate in question, but the financial mechanism behind these activities has become so difficult to maneuver, hardly anyone can actually participate in a positive way.  What are new ways of financing projects?  Is there a way to co-own a commercial building?  Is there a way where people come together to rehabilitate buildings with their own sweat-equity to keep costs down?  Is there a way people can rent time spent in a building, such as using a conference room for 2 hours or a media room to watch a webinar.  Maybe there’s a way that people can pay for living in a space through other means besides money, such as free handy-man services or custodial services.  I know things get sticky with bartering situations, and I’m not saying its the answer, but the time for conventional thinking and conventional financing has passed.  As you can see, I don’t have the answers, but I do know that if we put put our minds together we can come up with ways to move forward instead of stagnating in the real estate hell predicted by the economist for the next five years.

Do you have any ideas or thoughts on what we should do to get out of this mess?  Please leave me a comment.

The article:

From the Phoenix Business Journal
Economists: Arizona Recovery Years Out

by Mike Sunnucks

Arizona’s housing, commercial real estate and job markets are in
dire straits with projections for recovery years in the offing,
economists say.

Economists at a forecast sponsored by ASU’s W.P. Carey School of
Business and JP Morgan Chase & Co. Tuesday said consumers,
homeowners, businesses, job seekers and landlords can expect continued

Problem spots for Arizona include:

  • Lack of population growth.
  • An unprecedented 1.5 percent drop in personal income in between 2008 and 2009.
  • A 12 to 15 percent drop in retail sales.
  • A high percentage of underwater mortgages.
  • Office vacancy rates hitting a record 27 percent next year.
  • Job losses that are worse than in Detroit.
  • A real unemployment rate of 15 percent.

Arizona State University economist Lee McPheters said the state’s
official 9.3 percent unemployment rate probably is low because of the
high number of workers who given up looking for jobs. The real jobless
rate is more like 15 percent, he said. He also said it may take until
2013 for the state to rebound from its recession job losses. ASU
projects those losses to total 264,800.

Economist Elliott Pollack points to rough waters for both housing
and commercial real estate. Arizona’s housing market has an excess of
80,000 units and close to 40 percent of the homes being purchased are
by investors who will look to resell them soon, he said. Pollack
expects office vacancies to hit a record high of 27 percent. It could
be up to seven years before a new private sector office building is
built, he said.

Pollack also predicts high vacancy states for industrial and other commercial space.

Current office vacancy rates in the Phoenix area stand at 21.9
percent for office, 17.5 percent for industrial and 11.3 percent for
retail, according to Colliers International.

That compares pre-recession office vacancy rates of 12 percent or below.

Vacancy rates on the west-side of town stand at 40 percent, according to Marcus & Millchap Real Estate Investment Services.

McPheters cited numbers from First American CoreLogic that shows
more than half of Phoenix-area mortgages have negative equity value.

Phoenix is tied with Riverside, Calif., for the second worst rate. Seventy-percent of the mortgages in Las Vegas are underwater.

First American CoreLogic reported Nov. 24 that 48 percent of the mortgages in Arizona and 23 percent nationwide are underwater.

The mortgage equity problem has been most pronounced in newer
suburban areas of Phoenix, including of the west-side and Pinal County

Pollack said the number of distressed home loans in Maricopa County
in the foreclosure process stands at 50,000, compared to 28,000 in 2008
and 10,000 in 2007. Pollack said it will take years for the housing
market to recovery pointing out that many of Arizona’s traditional
economic drivers — tourism, population growth driven by retirees,
Californians and the semiconductor industry — have been hit by the
recession. “This is a downturn of Biblical proportions,” said Pollack.

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One Response

  1. tim says:

    i like your thinking! i want to hear and discuss more later. but right now i’m off to continue my pursuit of a “financially distressed” property in tempe near asu. ah, the good life! seriously though, i do appreciate your progressive insight. hope to talk in the future. tim…

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