Arizona Now Tops the Nation in Growth
Breaks Nevada's 20-Year Grip on the Title

By Howard Fischer, Arizona Daily Star

New figures today from the U.S. Census Bureau show Arizona is now the fastest-growing state in the nation. Its 4 percent population increase between 2005 and 2006 broke the stranglehold Nevada had on the title for the prior 20 years.

The addition of 220,000 Arizonans during that period boosted the official state population to 6,500,000 -- good enough to bump Tennessee, which added only 83,000 new residents, from its spot as the 16th-largest state in the nation. When the last formal census was taken in 2000, Arizona was just 20th. The state is only about 300,000 residents behind Massachusetts, which is growing at just 0.6 percent a year.

Lawmakers pumped an extra $345 million into the budget last session to accelerate road construction. But they were able to do that only because the state was running a surplus, permitting legislators to provide a tax cut and finance new programs.

The Arizona Department of Housing said that about 47 percent of renters and 27 percent of homeowners paid more than 30 percent of income for housing -- a figure the agency considers the benchmark of affordability.

So far, all that growth has not translated into higher unemployment. In fact, new figures released Thursday by the Department of Economic Security put the state's seasonally adjusted jobless rate for November at 4.1 percent, down from 4.7 percent a year earlier. The nationwide rate is 4.5 percent.

New residents also mean new schools -- lots of them. The state School Facilities Board already is planning to build 31 schools this budget year to accommodate 29,000 youngsters.

According to the Census Bureau, 130,000 people moved here from other states. Another 30,000 are international migrants.

Growth Increase in Population from 2005 to 2006:

• Arizona: 3.6%
• Nevada: 3.5%
• Idaho: 2.6%
• Georgia: 2.5%
• Texas: 2.5%
• Utah: 2.4%
• North Carolina: 2.1%
• Colorado: 1.9%
• Florida: 1.8%
• South Carolina: 1.7%

Source: U.S. Census Bureau

Arizona Tops Nevada as Fastest Growing State

By STEPHEN OHLEMACHER, CNN

WASHINGTON (Dec. 22) -- Arizona: It's not just for retired Midwesterners. Arizona is attracting people from across the U.S. and across the border at such a pace that it is now the fastest-growing state in the country, replacing Nevada, which had held the crown for 20 straight years. The new population figures were released by the Census Bureau.

"It used to be merely a retirement magnet for Midwest seniors," said William Frey, a demographer at the Brookings Institution, a Washington think tank. "Now it's an escape hatch for Californians seeking affordable housing."

Arizona led the nation with a population growth rate of 3.6 percent in the past year, followed by Nevada, Idaho, Georgia and Texas. "Every area where there's private land there's some form of development going on or being considered," said Century 21 real estate offices in Phoenix and Sierra Vista. "We've been in the business 25 years and we have never seen anything like this."

Wuerch said Arizona's real estate market has cooled after sizzling for several years. Still, he said, the market remains stronger than in other parts of the country, with growing medical and high-tech industries providing the jobs, and the sunshine providing the allure. "Good climate and affordability seem to be the draws for Americans this decade," said Frey, the demographer.

Forecasters See Real Estate Riding Population Wave

By "Inside Tucson Business"

Although Tucson rests in the middle of the Sonoran desert, the city's rising tide is expected to continue raising all boats, at least when it comes to the real estate market in Southern Arizona.

In their 15th annual industry recap and forecast, members of the Tucson area chapter of the CIM real estate networking and educational association, heard from last year's winning forecasters and additional industry experts. The forecasters said that Tucson's continuing influx of residents will keep all sectors booming for the indefinite future.

Noting that the CIM conference attracted almost 400 participants for this year, a record for the Southern Arizona chapter, CIM president said, "This is testimony to both the strength of the market and the level of interest in it."

"Macro-economic events affect everything," said 2005 appraisal forecast winner, principal of MJN Enterprises. "In Tucson, our drivers start with the housing market, and while housing starts here are high in relation to the number of new residents, as compared to other cities, loan service costs in relation to individual debt remain low, indicating that there's no risk of a housing bubble."

What the city's housing numbers do point to is continued pressure on construction costs and land prices, which will push up apartment prices, put a premium on retail space nearest the new housing and more demand for offices and industrial property.

"When 2004 was the hottest market on record, nobody expected 2005 to be even hotter," said a accredited land consultant. "We normally average about 2.5 people per house. If you look at the 28,000 people who moved to Tucson in 2005, a total of 11,200 homes were sold to meet their needs. That means 1,000 homes were sold to meet speculator demand, but even with these homes back on the market, I would still predict 10,000 new homes sold in 2006."

"That total also subtracts the potential purchasers of condominium conversions. With between 2,500 and 5,000 of them planned, mostly for the Catalina Foothills, they will make their mark," the consultant said.

Beyond Tucson, he said even more sales are likely outside of metropolitan boundaries as the city's growth continues on the periphery in Catalina, south on I-19 and beyond Vail into the Benson area. "As office and home builders compete for land, we could continue to see that outward pressure with 500 homes sold, in 2006 alone, in Cochise County."

"Another result of the home sales, themselves, has been fundamental changes in the development process," said a major Tucson Division Builder President. He said the growth of the city and changes in accounting rules mean developers are more likely to acquire unimproved property than take option on it. "We're closing on the land at the preliminary plat, rather than waiting until the final plat."

He said booming sales, which have left real estate developers with a lot of cash, mean there's more to spend on future land inventory. Combined with post-Enron accounting rules that mean land development work "goes on the balance sheet whether we own the land or not, we feel we might as well own it."

As for the condominium market, a Tucson developer, said it's no longer about price. Along with the Catalina Foothills, he said a total of 1,300 condominium units are planned for downtown.

"More residents are choosing the option," he said. For the first time, this group includes those who prefer single-family attached to traditional single-family residential. "They prefer the controlled access and the various amenities that the former apartment complexes offer."

Despite competition from the condominiums and people priced out of the market by increasing home costs, he said, "I would forecast a fantastic year for the industry."

By comparison, the market for multi-family housing will continue to be constrained by a lack of available land and capitalization rates less than mortgage rates, said a founding partner of a Tucson real estate company. Condominium conversions have pushed up per-unit prices and slashed the available inventory, but comparisons between rents in Albuquerque and Las Vegas and household income demonstrate that rents remain lower. "So, there's still a lot of room to raise them."

He called the real estate market "a perfect storm" for buyers and sellers. "There's no where to go but up, which means things are just going to get better and better."

Keeping pace, retail and office markets are also headed upward. "Downtown Tucson retains its 15-year inventory of available space, and retail or office space in older areas," said a president of a Tucson commercial company. "The retail vacancy rate is 8 percent, the lowest since 1988, with the lowest vacancies following the rooftops," he said. With master-planned communities becoming the standard, "developers are answering with better design, meeting the increasingly more local needs of the tenants."

They're also working to meet municipal government demands for designs that fit into the community setting and attention from national retailers. "As the city approaches a million in population they're looking at Tucson with new eyes."

Examining the status of the finance market and mortgage rates, a business development officer for last year's winning Wells Fargo Bank, said the decade-long relative stability of premium mortgage rates will continue, even if continue to slowly climbs. The only thing that will change is the amount of cash available for loans, which should tighten as investment returns to the stock markets, "and this will benefit the real estate market by making investors shift back to looking at market fundamentals.

Cleared to Tee Off or Take Off

By Paul Smalera of The New York Times

The Hohokams were probably the first to turn the foothills of North Tucson into a second home. Two millenniums ago, they spent their summers gathering cactus pears and mesquite beans, anthropologists say, just north of the basin where the city of Tucson was founded in 1775.

In more recent years, the foothills and the areas adjacent to the north have been rediscovered, you might say, by second-home owners who are finding that the Hohokams were onto something. Depending on the neighborhood, real estate agents estimate that 10 to 40 percent of the residents in North Tucson are second-home owners.

If, like Mr. Clippard, you fly but have trouble finding airplane parking, you might consider requesting permission to land at La Cholla Airpark, a community just north of downtown Tucson. The Clippards have a second home there -- and a two-plane hangar on a taxiway (or, as the earthbound might call it, a road), right off the airpark's main drag, a 4,500-foot landing strip.

"About every six months or year, we sponsor a fly-in pancake breakfast where about 300 pilots fly their little airplanes in, park on the street, and we play Dixieland jazz," Mr. Clippard said. When Mr. Clippard, a former airline pilot who retired from Pan American in 1991, and his wife, Carol, settled in Fort Lauderdale, Fla., they often flew their vintage Beechcraft to visit Mr. Clippard's father, who lived in Green Valley, Ariz. But because the local public airstrip was in an inconvenient location, the Clippards decided to build on land they'd bought in La Cholla.

The Clippards completed their self-designed home in 1999. Their aircraft-size version of a detached garage also houses a workshop and a second-floor guest suite.

If your concept of flying doesn't involve starting your own engine, though, you may find it convenient that the developments around the Santa Catalina foothills are 20 minutes closer to downtown than La Cholla is, and often feature more amenities like golf courses and tennis courts.

The Pellegrinos, however, found they preferred living in a foothills development without golf - Pima Canyon. Their previous house in Tucson was right on a fairway. "When the lawnmowers are going off at 5 o'clock in the morning, getting the course ready, you don't like it," Mr. Pellegrino said. "And when a golf ball comes crashing through your window, you don't like it."

Many part-time residents do enjoy living right off the courses, however, according to real estate agents who specialize in the foothills. They estimated that up to half the houses in newer developments like La Paloma and Ventana Canyon are bought as second homes.

Tucson has long been known as a snowbird destination, where Midwesterners like the Pellegrinos, from Chicago, come to escape the winters.

The Scene

The Santa Catalina and Tortolita Mountains, natural boundaries to the north that are full of prickly cactuses and wild desert creatures, have halted the sprawl that affects the east and west sides of Tucson, creating a natural enclave where part-time residents say they feel at home.

North Tucson is also becoming the home of the city's high-end shopping. A once dusty intersection of North Campbell Avenue and East Skyline Drive has become a town square for those who live in the foothills.

La Encantada shopping center opened on one corner of the intersection in 2003, to some skepticism. Mr. Schneider said he initially wondered who would shop at La Encantada, which is anchored by AJ's Fine Foods and a Tiffany store. Mr. Pellegrino, who is semiretired from the food distribution business, said he had noticed that people treated food displays as if they were exhibitions at the Field Museum in Chicago.

Less than four years later, the other three lots have spawned their own shopping centers, and Campbell Avenue's commercial district has grown northward. The Foothills Mall, on Oracle Road, has played a similar role near the airpark.

The Nederlander Producing Company of America is in the third season of the "Broadway in Tucson" series, bringing musicals like "Rent" and "Evita" to downtown.

Although national chain restaurants have made inroads in the new shopping plazas, so have local favorites like Mosaic Cafe Dos, which is run by the daughter of the owners of Teresa's Mosaic Cafe, one of Tucson's best-known Tex-Mex restaurants.

Some residents of North Tucson are skeptical about whether other desert communities offer the same lifestyle as theirs. "Phoenix is becoming mini-Los Angeles, with all the freeways," Mr. Pellegrino said.

About 15 percent of residents in La Cholla join the Clippards in making it a second home, say real estate agents who lives in La Cholla. The Clippards are certain that there are few places in Arizona that could give them their current arrangement. Since they keep their planes at a public airstrip while in Fort Lauderdale, they often put their planes, and themselves, in Tucson during hurricane season.

Pros: Infrastructure, services and shopping are the key to the foothills' attractiveness. Since there are few large lots left, congestion is not likely to develop along River Road and Skyline Drive, the region's main east-west roads, real estate agents say. Near the airpark, there are still undeveloped spaces that once defined the entire north side of town.

Cons: Without a comprehensive freeway system, it's tough to get to other areas of Tucson, creating an enclave effect that some residents love.

Lay of the Land

Population: About 60,000 people live in the foothills and another 45,000 live around La Cholla Airpark.

Size: About 42 square miles in the foothills and 50 square miles around nearby La Cholla.

Who's Buying: Baby boomers from cities like Chicago, Minneapolis and Los Angeles who are planning for a retirement that allows them to enjoy the culture and sophistication of life near an urban core.

Getting There: Many flights from the East Coast connect to Tucson International Airport through Chicago, Dallas or elsewhere. There are some nonstop flights from New York, and most service from the West Coast is direct. Tucson is a stop on Amtrak's Sunset Limited route.

While You're Looking: The Westin La Paloma Resort & Spa (3800 East Sunrise Drive, 520-742-6000; www.westinlapalomaresort.com) is nestled in the Tucson foothills. There is also a Holiday Inn Express (10150 North Oracle Road, 520-202-4000; www.hiexpress.com) in Oro Valley, near La Cholla."