| ECONOMY | |
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The Houston economy continues to run countercyclical to the U.S. economy despite experiencing the impact of the national and international economic downturn, according to Texas A&M's Real Estate Center's "Monthly Review of the Texas Economy", December 2008. Houston posted another solid year of economic expansion in 2008, outperforming most parts of the nation as the local economy benefited from the strong oil and gas market. Of the nation's 39 metro areas with a population of more than 1.5 million residents, the Houston-SugarLand-Baytown area posted the largest employment gains. According to the Texas Workforce Commission, Houston employment grew at an annualized rate of 2.0% last year in 2008 while the unemployment rate sits at 5.7%, well below the national unemployment of 6.7%. Houston's economy has been driven by the energy industry the past few years as high oil and gas prices promoted healthy job growth. Despite last fall's record low prices of crude oil, recent decreases in oil prices have not adversely affected the Texas oil and natural gas industry's ability to generate jobs. Houston has been relatively insulated from the rest of the country in recent years but that trend will likely slow in 2009. Local manufacturers have seen a boom in activity thanks to the robust domestic and international demand for oil exploration equipment. However, all signs point to a slowdown in this sector as global and national economic problems trickle down into the local economy, which will cause job growth to slow in 2009. One of the major problems has been the price of oil, which rose to nearly $150/barrel in July 2008, but collapsed below the $50 mark by November 2008. Even though crude prices are beginning to rise, energy companies will be less inclined to hire new employees as new ventures become economically unfeasible. In spite of the economic turbulence experienced across most of the nation resulting from the subprime fallout and frozen capital markets, Houston has been able to buck the trend as the core industries thrived. The latest employment estimates showed sustained strength in some well-paid industries, with the over-the-year job growth of 6.3% in oil and gas extraction, 9.6% in support activities for mining, 2.6% in durable goods manufacturing, 5.5% in architectural and engineering services and 3.7% in computer systems design and related services. |
As of the first quarter 2008, Houston’s median family income was $53,779 (based on 2006 inflation-adjusted dollars) compared to the U.S. median of $58,526. Houston’s more affluent households are scattered throughout the metropolitan area. Households with annual incomes of $100,000 or more are concentrated in north Harris County, west Harris County along the Katy Freeway, and southeast Harris County along the shores of Galveston Bay. Among the nine counties in the Houston-Baytown-Sugar Land MSA, Fort Bend County, which includes the Sugar Land area, has the highest median household income, followed by Montgomery County. |
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SINGLE-FAMILY HOUSING: The construction sector remains relatively healthy even though sales of new and existing homes have dropped within the past year. The strength of the local energy sector softened the blows dispensed by the housing-lending debacle. Fortunately, the effects of the subprime meltdown have not been as dramatic as in other markets such as Los Angeles and Miami where homeowners have seen all their equity dissipate as home prices fell by an average of 30% to 35%. Through the first 10 months of 2008, the number of home sales in the greater Houston area was down 15% from the same period in the previous year. The good news is that the downward pressure on median home prices has been more moderate than elsewhere in the country and there isn't a large inventory of existing construction. Houston has witnessed a large number of foreclosures, a little over 1,000 per month. This trend is predicted to continue into 2009 before reaching its plateau. The bright side is that single-family home permits declined, which will allow the market to return to normal as demand catches up with supply.
MULTI-FAMILY HOUSING: Houston's multi-family housing market posted a solid year of growth in 2008 as net absorption surpassed the previous year's levels. Despite the national economic slump, Houston still benefits from the oil and gas industry. Another contributing factor involves homeownership, which is relatively affordable but has become increasingly unattainable for many due to tighter financing stipulations, especially in the entry-level market. These factors, coupled with the increasing number of foreclosures, have led to steady growth in the multi-family housing market. consequently, the local market witnessed positive growth among all classes in 2008, except Class C inventory, with the Class A market recording the largest annual absorption gain. The sustained demand has led to many apartment owners raising rents across all classes, especially in Houston's more prestigious neighborhoods. Despite the slowing national economy, multi-family housing will remain a steady performer in 2009 as a result of healthy population growth, rising foreclosures and stringent underwriting regulations, which will prevent some renters from buying homes. Development activity was high in 2008, with nearly 13,000 units added to the inventory. Currently there are 101 projects under way, if development continues on track, this will bring an additional 26,160 units over the next few years. With an influx of new supply, rent growth is expected to ease in 2009 as existing properties compete with new developments. Even though demand is expected to slow in 2009, Houston will remain one of the better markets across the nation due to the attractive long-term demand drivers.
IN SUMMARY Although the Houston economy expanded in 2008, outperforming most of the nation, it began to show signs of deceleration as job growth weakened, unemployment increased and consumer spending fell. The majority of the decline occurred in the city's non-energy economic base which has slipped together with the national slowdown. The effect of a weakening economy had a modest influence upon Houston's commercial real estate market throughout the past year in the form of reduced net absorption and rising vacancy rates among all property types.
The forecast for 2009 will be more of the same as area businesses remain cautious in their operation decisions. In many cases, businesses will shelve their expansion plans and not take any risks until the economy beings its recovery. According to Dr. Barton Smith, Director of the University of Houston's Institute for Regional Forecasting, the Houston market will likely see modest job losses in 2009 before bouncing back in 2010, with amount of cuts depending on the length and severity of the national recession. Over the longer term, Houston's formidable economic and demographic fundamentals bode well for the market. Strong population growth and steady economic performance will position Houston to benefit from the pending recovery.
Disclaimer: The information contained in this document contains material from sources deemed to be reliable. However, KET Enterprises Incorporated does not warrant the validity of same.
Sources: Jack L. Hughey & Associates Grubb & Ellis 2009 Real Estate Forecast O’Connor & Associates The Greater Houston Partnership Dr. Barton Smith: The Institute for Regional Forecasting Hendricks & Partners Live Oak Capital Marcus & Millichap Federal Reserve Bank of Dallas – Economic Research Publications
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