Western Alliance Bank Economic Forum Highlights Resilient Labor and Housing Markets

Phoenix’s economy continues to thrive, driven by a robust labor market that has outpaced national averages and steady growth in various sectors.

While the housing market has shown signs of cooling, prices remain well above pre-pandemic levels, according to leading economist Dr. Christopher Thornberg of Beacon Economics, a provider of economic research, forecasting and industry analysis and data services. Thornberg spoke at the 2024 Economic Forum in Phoenix.

Employment remains robust

The Phoenix employment rate has surged by 2.6%, outpacing the 1.6% growth seen nationwide, particularly in sectors like healthcare, government, professional services, and construction.

Phoenix has experienced remarkable growth in its labor force since the start of the pandemic, outpacing the national average. Among comparable cities, only Austin and Dallas have seen more significant expansion. Since February 2020, Phoenix’s labor force has grown by 10.6%, compared to a 2.4% national increase.

Housing prices, availability continue meeting area’s needs

Phoenix home prices continue to climb, but the pace of appreciation has slowed. While prices remain significantly higher than before the pandemic, the increase from July 2023 to July 2024 was only 1.2%, compared to the national average of 4.3%.

National housing inventory remains limited, but Phoenix has seen a notable increase in housing stock over the past year. This growth has brought inventory levels closer to pre-pandemic levels. As buyers adjust to the expectation of higher interest rates — at least compared to the historic lows of a few years ago — the housing market is likely to see further increases in inventory.

The high cost of homeownership continues to fuel demand for apartments in Phoenix. Even though vacancy rates have been rising, the market still absorbed 8,227 new units last year, suggesting that the increased supply is the main factor behind rising vacancy rates.

Demands for office and commercial space mirror national trends

The Phoenix office market has seen a decline in demand, resulting in a negative net absorption of 2.15 million square feet. Combined with a 3.3% decrease in occupied space, this trend has increased vacancies.

The rising popularity of online shopping has driven a surge in demand for warehouse and distribution space in Phoenix. Last year, the market absorbed 11.68 million square feet, indicating that the increase in vacancy rates is primarily due to the rapid growth in supply, not lower demand.

Overall outlook: Sunny skies ahead

Phoenix’s economy continues to exhibit robust growth, showcasing its strength as a leading economic hub in Arizona and the broader region. The city’s labor market has consistently outperformed similar-sized markets, demonstrating its ability to attract and retain a talented workforce.

While there are some indications of a slight slowdown in the housing market, this is mainly attributable to the Federal Reserve’s effort to combat inflation. The central bank’s policies, aimed at reducing demand and curbing the money supply, have successfully curbed inflation, which had previously dampened consumer confidence.

Despite these minor adjustments, Phoenix’s overall economic outlook remains positive. The city’s strong labor market and its resilience in the face of economic challenges position it well for continued growth and prosperity.