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Oct 8, 2015
Notes from the Research Roundtable
Each month the Center’s research team meets to discuss current economic and real estate trends and conditions throughout Texas. The informal conversation focuses on our interpretations of recent data and what we think is happening and likely to occur in the future. Here’s what we talked about this month:
- Texas employment growth in August underperformed the United States. for the first time since the Great Recession. Only two sectors experienced actual decline: manufacturing and mining/logging. Texas’ employment growth rate will slow down even more next year but probably not turn negative. There was wide variation in employment growth rates across the 25 Texas MSAs primarily reflecting the local economy’s dependence on energy.
- Texas housing activity and values have held up better than expected so far in 2015 given the sharp decline in oil prices late last year. Low supply relative to demand is driving the current health in Texas housing. Due to restricted credit for land development and limited labor availability, Texas home builders have not been able to keep new housing supply in balance with demand. Restricted supply and strong household growth points toward further home price increases. Housing markets with a local economy more dependent on energy will be weaker than the rest of Texas.
- New home prices continue to escalate into the upper price points. Home builders cited the following significant problems in producing new homes in a recent NAHB survey: banking/financial institution regulations; cost/availability of labor; appraisals; material costs; and cost/availability of lots.
- The commercial market is exhibiting a similar pattern of slowdown in energy-dependent markets but expansion in non-energy markets. The growth in office rental rates has declined significantly in Houston but continues to increase in Austin, Dallas and San Antonio.
- We appear to be entering a period where the new normal for “strong” GDP growth is around 2.5 percent annually versus the long-term average of 3.4 percent. Long-run U.S. economic growth may be hampered by: (1) over-bearing regulatory controls (especially financial and institutional); (2) a declining labor participation rate as work-age individuals drop out and as baby boomers continue to leave the workforce — people who earn less spend less and consume more social services funded by taxes on the working population; (3) lowering education levels — critical need to improve the skill level of the U.S. workforce to meet the unfulfilled demand for trade and technical jobs in addition to the college-educated.
- The heightened state of global political risk adds a high degree of uncertainty to economic forecasts. Geo-political and military unrest around the world remain extremely volatile creating greater potential for unexpected shocks to global economics.
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