Tucson’s economy is expected to post healthy gains in jobs, population and income next year, but it’s getting tougher to afford a home here.
Housing affordability is declining as home prices outpace inflation and income growth, University of Arizona economists said Wednesday at an annual forecast breakfast.
Income growth has been slow across the nation, Arizona and Tucson during the recovery from the Great Recession, falling to an annual range of 2% to 3% since 2010 from a range of 4% to 5% before the recession took hold, said George Hammond, director and research professor at the UA Eller College of Management’s Economic and Business Research Center.
“We continue struggling to generate that wage growth, even with the effects of a higher minimum wage,” Hammond told a crowd of about 300 at the UA forecast breakfast at Loews Ventana Canyon Resort.
Though the accelerating replacement of baby boomers with lower-paid younger workers is depressing wage growth nationwide, UA economists are predicting that personal income in the Tucson metro region will grow 4.1% this year and 4.8% next year, as labor markets continue to tighten.
But home prices are increasing even faster, rising 7.9% over the year in the first quarter alone according to the Federal Housing Finance Agency, Hammond noted. The median home sales price in the Tucson market was $215,000 in April.
The affordability of single-family homes in Tucson slipped in 2017, and lower-income residents — those with annual incomes of less than $35,000 — face a higher housing-cost burden as a percentage of income than Arizona and the nation as a whole.
Even so, Hammond noted that Tucson still leads the U.S. and a group of 10 peer Western cities in an index of home affordability.
“Affordability is still well above levels last seen at the house-price peak” in 2006, Hammond said.
As the Federal Reserve Board continues to raise short-term interest rates, average mortgage interest rates are expected to rise to around 5.4% by 2021, from around 4.6% now, he said.
The UA economists expect Tucson to add 5,500 jobs this year and 6,000 in 2019, for growth rates of 1.5% and 1.6%, respectively.
Job growth in Tucson began recovering in 2014 after slipping to near zero during 2012 and 2013 due partly to federal budget cuts.
The projection is about the same as last year when the 5,400 jobs added was the fastest growth rate since 2012.
But that still lagged the Phoenix metro area, at 2.8%, and the state at 2.4%.
Hammond said Tucson, which has a high percentage of government-related jobs, should benefit from an increase in federal spending in the next couple of years but that growth is expected to flatten by 2021.
Strong construction job gains reflect a significant increase in Tucson housing permits last year, according to revised data from the U.S. Census Bureau.
Tucson housing permits hit 4,495 last year, the highest level in 10 years, fueled by a surge in multi-family permits, the UA economists found.
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