In the past decade, the Southwest United States has experienced a remarkable growth spurt. The Phoenix metro area, for instance, has seen its population swell by over 800,000 since 2012, reaching around 5 million people.
This explosive growth earned Phoenix the title of the nation’s fifth-largest city in the 2020 census, with the fastest growth rate among large U.S. cities. Las Vegas metro area wasn't far behind, adding nearly a million people to its population, now close to 3 million residents. Derek Stoddard, SRA, an appraiser with Libra Appraisals in Las Vegas, notes that except for the Great Recession period, the city has been on a consistent growth trajectory for three decades, experiencing a revitalization across commercial, residential, and professional sectors.
Matthew Buxton, MAI, SRA, of Southwest Property Consultants, observes that Las Vegas is transitioning from a tertiary to a primary market, aligning itself with other large market areas such as Phoenix, parts of Southern California, Salt Lake City, and Denver. This growth in both cities has been coupled with increasing property prices, which saw a slight shift with the rise in mortgage rates in 2022. However, this impact was short-lived and modest. In Las Vegas, for example, median sale prices which peaked at about $480,000 in May of 2022, dipped to $425,000 but have since rebounded to around $450,000, according to Lowe.
In Phoenix, the real estate market experienced similar fluctuations. iBuyers, significant players in the market, turned around and liquidated their assets at a loss, which led to a temporary decline in prices. However, as Dale C. Cooper, MAI, SRA, AI-GRS, AI-RRS, vice president and chief appraiser at Foothills Banks in Chandler, Arizona, points out, the market has seen a 6% year-over-year increase. These price movements in both markets can largely be attributed to the significant shortage of housing inventory.
The new residential construction sector is robust, particularly in the Phoenix area, creating a seller's market due to the scarcity of resale homes. Ryan Campbell, SRA, chief appraiser and owner at OnPoint Appraisals in Chandler, Arizona, notes that high demand and builder financing are driving these sales. However, despite the healthy construction activity, it has been challenging to keep pace with the high levels of in-migration.
In Las Vegas, the strategic geographical location has been a magnet for companies. Buxton highlights that millions of square feet of distribution space have been built since the onset of COVID-19, maintaining vacancies under 3% across most of the valley. The cities not only attract businesses but also offer appealing lifestyles, from diverse dining and entertainment options to recreational activities in nearby mountains and deserts.
However, this growth and development in the Southwest are not without their challenges. The region has been grappling with increasing temperatures and potential water shortages, a trend expected to continue throughout this century. These environmental challenges are particularly acute in areas like Lake Mead, which supplies about 90% of Las Vegas’ water and has seen dramatic falls in water levels.
Both Phoenix and Las Vegas have been proactive in addressing these issues. For instance, Phoenix uses canal systems to transport water from distant sources, and Las Vegas has seen developments pushing housing further up the valley hills, which complicates water distribution and increases costs. In more rural areas around Phoenix, residents rely on private water companies, which can be significantly more expensive than municipal utilities.
The real estate sector is feeling the impact of these environmental challenges. In Phoenix, the state of Arizona now requires builders to demonstrate access to a 100-year water supply, a regulation that is expected to limit new homebuilding and contribute to shortages in residential inventory.
Both Phoenix and Las Vegas have implemented comprehensive water management and conservation programs. Las Vegas, for example, has banned grass in new developments and imposed moratoriums on evaporative cooling in commercial buildings. Phoenix has focused on recycling wastewater and encouraging desert landscaping. These efforts have led to significant reductions in per-capita water use, despite the growing populations.
The challenges posed by a changing climate and growing populations in the Southwest are increasingly on the radar of real estate professionals. While climate change may not yet significantly impact the day-to-day operations of appraisers and other professionals, it is becoming a more pressing concern for city planners and government officials. As the region continues to grow, balancing development with sustainability will be crucial in shaping the future of these dynamic cities in the Southwest.
Source: Michal Mohelsky, MMCG, Valuation Fall 2023 (Appraisal Institute) Peter Haapaniemi, Dale C Cooper, Ryan Cambell, Matthew Buxton, Kristen Lowe