As the economy recovers there is a ‘new normal’ - Inside Tucson Business: Construction / Real Estate

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As the economy recovers there is a ‘new normal’

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Posted: Friday, February 1, 2013 6:00 am

As the economy continues to recover, former University of Arizona economist Gerald Swanson cautions businesses, and taxpayers in general, should be concerned about what’s likely to become “the new normal.”

The middle class is disappearing. Real wages are stagnant. Unemployment is dropping based on technicalities in the calculations. Consumer spending is up only because people are dipping into their savings.

The national debt is now larger than the U.S. economy, at 101.7 percent. GDP growth is about half its historic rate. And the federal government is printing money at will to keep inflation at bay.

All these factors reflect what is becoming acceptable as the new and normal conditions of the U.S. economy.

“These numbers bother me the most. There are gaps opening up in the economy,” Swanson said. “The politicians in Washington have to do something. In 2013, fiscal policy will be a drag on the economy.”

Swanson, who had been at the UA for 43 years until he retired in December, also works as an economic analyst for public and private sector clients. On Tuesday (Jan. 29), he keynoted a real estate forecast by the local chapters of the Building Owners and Managers Association (BOMA) and Institute of Real Estate Management (IREM).

Although the economy is in the doldrums, the good news is not exciting and the bad news is not dismal, he quipped. The national and local economy is growing, yet neither has full traction.

Construction activity helped to lower overall unemployment rates. And nationally, manufacturing improved due to a surge in exports, mostly car sales.

“In terms of growth, we have been just awful. Our economy is just limping along, there is no magic bullet to fix it,” he said.

A significant but overlooked negative condition that is part of the “new normal” economy is the FICA payroll tax. On Jan. 1, a temporary cut was allowed to expire that raised the rate 6.2 percent from 4.2 percent.For the average worker it was an $80 per month tax increase.

“In 2012, this cuts $125 billion in take-home pay. That’s not a positive for consumer spending, consumer confidence or the economy,” said Swanson.

To potentially offset that, private businesses are ready to hire and spend money. Profits are strong and some $2 trillion is stashed away in banks waiting to be invested.

However, they are frozen until the federal government clarifies its fiscal policies regarding issues such as future tax rates, medical costs, and regulations.

“Nothing happens until we see something from Washington. Until then, they wait and see,” Swanson said.

In the category of property management, Swain Chapman, founder of Chapman Management Group, discussed the sector’s new paradigm. Large institutional players such as Goldman Sachs, Bank of America, Wells Fargo and even what’s left of Lehman Brothers, are moving into and dominating more of the market.

“Wall Street recognizes them as an asset class. They are the next generation in our market. Highly sophisticated, well-trained,” Chapman said.

To stay competitive, he urged property managers to embrace the changes and pursue additional credentials. For personnel doing building maintenace, raise the standards. Seek staff with engineering degrees and compliment your company’s depth with talent who hold advanced business and financial degrees.

Barbi Reuter, associate broker for Picor Commercial Real Estate Services, gave an overview of the broad commercial sector. In 2012, “uncertainty shifted to stability. Pessimism shifted to optimism. And the fundamentals are firming very slowly.”

Real estate matters

The Pima County Real Estate Research Council will host a “real estate matters” forum next Thursday (Feb. 7) that features Pima County Administrator Chuck Huckelberry and City of Tucson Assistant City Manager Albert Elias.

They will be joined by a group of commercial real estate experts who will share their insights on the retail, land, office, multi-family/student housing, and new home/residential market sectors.

The forum will be held at the Tucson Association of Realtors, 2445 N. Tucson Blvd. Registration is at 7:30 a.m. and the program begins at 8 a.m. Attendance is free to all members of the research council; non-members can attend one meeting for $50. Online registration is required at

Inside the stats

Statistically, the region’s real estate market posted solid gains in almost every metric in 2012. In Sahuarita, average selling prices soared 34 percent. In Tucson, the median closing price racked up a 27 percent gain.

In categories that fell, the declines were minor, according to a detailed analysis in the Coldwell Banker Residential Market Action Report. The company highlighted some key stats about the Tucson region, using year-end 2011 as the baseline compared to year-end 2012:

Tucson sector

• Sales rose 4 percent to 10,630 homes from 10,219

• Days on market fell to 90 from 99

• Inventory fell 30 percent to 3,145 homes from 4,478; leaving 4½ months of supply

• Median selling price gained 27 percent to $145,000 from $114,500

• Average selling price gained 17 percent to $186,460 from $159,117

• Average selling price per square foot rose to $98 from $81

Marana sector

• Sales rose 6.5 percent to 508 homes from 477

• Days on market fell to 95 from 153

• Inventory fell 19 percent to 228 homes from 282, leaving 6.2 months of supply

• Median selling price fell 7 percent to $160,000 from $171,450

• Average selling price gained 9.5 percent to $210,133 from $191,926

• Average selling price per square foot rose to $100 from $92

Sahuarita sector

• Sales fell 7 percent to 506 homes from 545

• Days on market rose to 110 from 96

• Inventory fell 23 percent to 160 from 208; leaving 4.8 months of supply

• Median selling price gained 24 percent to $143,000 from $115,000

• Average selling price gained 34 percent to $173,289 from $129,737

• Average selling price per square foot rose to $85 from $67

Oro Valley sector

• Sales rose 17 percent to 706 from 603

• Days on market rose to 150 from 123

• Inventory fell 27 percent to 286 from 392; leaving 7.2 months of supply

• Median selling price fell 3 percent to $220,000 from $227,500

• Average selling price gained 10 percent to $268,167 from $244,130

• Average selling price per square foot rose to $129 from $119

Sales and leases

• WG Sahuarita Holdings LLC purchased two retail pads totaling 126,500 square feet within Madera Marketplace at the northeast corner of Interstate 19 and Nogales Highway, Sahuarita, for $575,000. The seller was Evergreen-Interstate 19 & Nogales LLC Whirlygig Properties, represented by Brenna Lacey and Dave Hammack, Volk Company. The buyer was self-represented and plans to build a Goodwill retail store at the site.

Email sales and leases and other real estate news items to Inside Real Estate & Construction appears weekly.

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