Where Does the Houston Economy Go Now? Oil Prices Still the Key
Robert W. Gilmer, Ph.D.
C.T. Bauer College of Business April 2017
The Worst Is Over, But Where Are We Now?
• Houston has slowed to no-growth for two years, but has seen no major economic reversal
• Where are we now? • We have probably put behind us the worst downturn
ever for American oil • The U.S. economy continues to grow at a healthy rate • The East Side petrochemical boom is over • All forward momentum from the Fracking Boom is now
lost, can only be rebuilt slowly
• Where are we going now? We begin from a dead stop. After that, just tell me the price of oil, please.
For Houston, Its Problems Have Been All About Oil Prices
0
20
40
60
80
100
120
WTI $/bbl. Monthly
25
30
35
40
45
50
55
60
WTI $/bbl. Daily in 2016-17
Houston Job Growth Rides Oil Boom and Bust
December to December Changes
Jobs Change*
2012 118,600 4.3%
2013 89,800 3.2%
2014 117,800 4.0%
2015 20,700 0.7%
2016 … through 12,500 0.5%
Texas Workforce Commission
Sector
Before Revision Dec to Dec
After Revision Dec to Dec
Jobs Jobs % Growth
2012 118,600 118,800 4.4%
2013 89,800 90,400 3.2%
2014 117,800 118,200 4.1%
2015 15,200 200 0.0%
2016 14,800 18,700 0.6%
Current Slowdown Marked The End Of A Decade Of Job Growth
(annual percent change)
-6
-4
-2
0
2
4
6
19
96
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1.9
Note: December to December changes, except 2017 which is year-to-date, annualized, and seasonally adjusted. TWC estimates.
Slow But Still Positive: Houston Job Growth Revised Down to 18,500 Jobs In 2015-16
(3-month percent change at annual rates, s.a.)
-8
-6
-4
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0
2
4
6
U.S.
Houston
Texas Workforce Commission and Bureau of Labor Statistics
Oil-Related Job Losses Grow to 77,200 After Revisions
(Net Change in Jobs, Dec. to Dec.)
Sector Dec ‘14 – Dec ’16
New Jobs Percent
Total Payroll 17,300 0.6%
Mining -29,400 -25.7%
Construction 3,200 1.5%
Manufacturing -40,300 -15.5%
Machinery -18,700 -34.2%
Fab Metal -20,500 -28.3%
Wholesale Trade -5,700 -3.4%
Prof/Buss Services -3,000 -0.6%
760.0
780.0
800.0
820.0
840.0
860.0
880.0
900.0
Dec
-12
Ap
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Au
g-13
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Au
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Energy Sectors Begin to Turn in Early 2017 (000, s.a.)
*Revised Texas Workforce Commission estimates. Oil –Related Jobs = Oil Producers and Services, Machinery and Fabricated Metal, Wholesale Trade, and Professional and Business Services.
Growth Of Selected Services Revised Down But Remains Strong
Number of Jobs in Key Services Revised Down, seas. adj.
1360
1380
1400
1420
1440
1460
1480
Tho
usa
nd
s
New Jobs Added Dec 2014 to Dec 2016 (and recent revisions)
• 22,971 health care (-3,425)
• 20,836 food service (-7,850)
• 16,805 local government (+3,342)
• 10,756 retail trade (-8,679)
• 5,954 finance (+3,440)
• 4,207 arts/entertainment (-14)
• 4,148 private education (+394)
• 1,202 accommodation (-492)
• 86,026 all 8 sectors (-14,098)
Texas Workforce Commission
Downward revision of 14,098 jobs
Where Did This Service Sector Growth Come From?
• Where did this services growth come from? • Strong national markets: United Airlines, Sysco, AIG, HP • Petrochemical construction boom in East Houston • Past momentum, built on Houston’s 680,000 new jobs from
2004-2014 • In-migrations continues strongly for several quarters after job
growth slows • Most direct damage is confined to oil producers, oil services,
and manufacturing … so far
• BUT … we are now 26 months into this slowdown. The chemical boom is over; momentum has waned; population growth is evaporating. Only the U.S. economy left to help out … and the renewed drilling activity.
Plenty Of Other Signs Of A Big Slowdown Or Mild Reversal
Houston unemployment rate moves above U.S. to 5.4%
3.0
4.0
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11.0
Houston
Quarterly Sales and Use Tax Collections Down 11.4 and 8.5 Percent for City & METRO MTA
100
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150
160
170
180
190
Mill
ion
s
City of Houston
Bureau of Labor Statistics
U.S.
METRO MTA
Texas Comptroller, seasonally adjusted; Through 2016Q4
Houston Purchasing Managers’ Index Makes Strong Move Up in 2017
30.0
35.0
40.0
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55.0
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65.0
70.0
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Index, seas. adj.
US Index Houston Index 50 Neutral
U.S.
Houston
Was It Recession? Ask The Dallas Fed Business Cycle Index
Tracks local business cycle with four variables
180.0
200.0
220.0
240.0
260.0
280.0
300.0
320.0
Dec
-00
Mar
-02
Jun
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Sep
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Mar
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Jun
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Sep
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Sep
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Mar
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2000 to 2017
We were on brink of recession in 2016, if not in It
265.0
270.0
275.0
280.0
285.0
290.0
295.0
300.0
305.0
Dec
-12
May
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Oct
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Mar
-14
Au
g-14
Jan
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Jun
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No
v-1
5
Ap
r-1
6
Sep
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Feb
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Jul-
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Dec
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2013 - 2017
Houston in Five Drilling Downturns: So Far, This One Is a Possible Mild Recession
% Decline Rig Count
% Loss Local Jobs
Dallas Fed BCI
Economic Event Quarters Decline
% Decline
U.S Economic Performance
1980's -82.4 -13.3 20 -17.6 - +
Asian Financial Crisis -46.0 None No Recession + +
2001 Tech/Enron -35.4 -1.3 9 -2.9 -
Great Recession -50.9 -4.1 5 -7.5 - -
Fracking Bust … so far -75.4 None 6 -2.4 +
Oil Markets and Oil Price
Global Oil Demand Has Held Steady This Has Been a Supply Problem
(million bbl./d)
60
65
70
75
80
85
90
95
100
105
Jan
-97
Sep
-97
May
-98
Jan
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Sep
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Sep
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May
-14
Jan
-15
Sep
-15
May
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Jan
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Sep
-17
Great Recession
Fracking Bust
Asian Financial Crisis/ Tech Bust
Commodity Boom
0
10
20
30
40
50
60
70
80
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Drilling Recovery Means Oil Near $65/bbl.
Long-Run Marginal Cost of Global Oil Production
1
2
3
4
5 6 7 8
11
9
10
$/bbl.
Production (million bbl./d) This is chart is stylized and illustrative
Price Of WTI Oil As Implied by Valuation Of The Stock of 40
Producers
62
60
62
56 56
62
64
66
64
59
$50
$52
$54
$56
$58
$60
$62
$64
$66
$68
Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16 Jan '17 Mar '17
$/bbl.
Goldman Sachs Research, at first week of each quarter
The Commodity Super-Cycle Is Over (price index: Jan 2001 = 100)
0
100
200
300
400
500
600
Food
Ag Raw Materials
Metals
Crude Oil
International Monetary Fund
Growth In The Demand For Oil Comes From Emerging Markets
(million b/d)
8.0
18.8
-5
0
5
10
15
20
1996-2003 2003-2016
Global
OECD
Non-OECD
International Energy Agency
Global Economy Still Trapped in Prolonged Period of Sub-Par Growth
(percent change in GDP)
-6
-4
-2
0
2
4
6
8
10
12
14
16
Brazil China India World
Brazil
China
India
World 2.2
1.5
3.6
2.7
1.7
4.4
2.9
1.8
4.7
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
World Developed Emerging
Slow Global Growth Led By Developed World
2016 2017 2018
Percent
IMF World Economic Outlook, April 2017
On Supply Side? U.S. Shale Reversed 40 Years Of Declining Oil Production
(million barrels/day)
4
5
6
7
8
9
10
11
DOE/EIA, Seasonally adjusted by IRF
Peak: July 2015 Still Down 677,000 bbl./d
As Oil Prices Rose This Spring, Optimism Returned To The Oil Market
• The big three oil service companies all declared a bottom was in place for drilling in their 2016 earnings reports
• Oil service and machinery stocks quickly rose 30% in February and March as the OPEC agreement fell into place, then fell back in March and April with lower oil prices
• The rig count has more than doubled from the March 2016 low of 404
• But did producers get ahead of themselves? Again trying to drive equity gains instead of profit over the oil-price cycle?
1200
1400
1600
1800
2000
2200
2400
2600
2800
S&P Oil Service And Machinery Stock Price Index
Oil prices improve
OPEC accord signed ->
In March, All OPEC’s Efforts to Drive Higher Oil Prices Seemed to Be Lost
$44
$46
$48
$50
$52
$54
$56
$58
$60
WTI Futures $/bbl.
$60/bbl.
March 17
Before OPEC Pact
After OPEC Pact
By April, Modest Optimism Was Back: But Oil Price Never Close to $60
44
46
48
50
52
54
56
58
60
WTI Futures $/bbl.
$60/bbl.
March 17
Recent
After OPEC Pact
Drilling Has Definitively Turned Up from Historic Lows
300
500
700
900
1100
1300
1500
1700
1900
2100
1 8
15
22
29
36
43
50
57
64
71
78
86
93
10
0
10
7
11
4
12
1
12
8
Weekly Count of Working Rigs
Weeks after peak in drilling activity
488 Rig Count was previous all-time low
2008-2009
2014-2016
Thinking About Recovery In the Oil Patch
Recovery In Rig Count After Oil Prices Definitively Move Up
(working rigs by quarter after oil prices begin to rise, s.a.)
0
500
1,000
1,500
2,000
2,500
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47
Quarters after recovery
2008-09
1997-98
2001-03
1982-87
Baker Hughes, calculations of IRF
Building Scenarios For Recovery In Oil
• When will oil prices hit bottom?
• When will the rig count turn up?
• When do energy jobs begin to come back?
• How high will the rig count go in this recovery?
• When do energy jobs begin to come back?
• How long before the rig count reaches these highs?
Three Scenarios for a Drilling Recovery
• Rig Count? • High Scenario: Strong recovery like 2008-09
continues to unfold • Medium Scenario: Slows in 2017Q2/Q3 but
moderate recovery continues • Low Scenario falls back in 2017 Q2, remains
low and slow trough 2018
• Rig Count Max After Recovery? • High Scenario: 1650 • Medium Scenario: 1500 • Low Scenario: 1300
• Return of Drilling Jobs in Houston • High Scenario: 2017Q1 • Medium Scenario: 2017Q3 • Low Scenario: 2018Q4
High scenario requires a quick rebound in oil prices to $55, and continued move to $60-$65 range; moderate requires a return to $55 or better; low scenario triggered by continued oil price near $45, and staying at that level through 2017 and into 2018.
Rig Count Scenarios and the Return Of Oil Employment In Houston
0
500
1000
1500
2000
2500
Jan
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-12
Jul-
13
Ap
r-1
4
Jan
-15
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-15
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16
Ap
r-1
7
Jan
-18
Oct
-18
Jul-
19
Ap
r-2
0
Jan
-21
Oct
-21
Rig Count
High Medium Low
195
215
235
255
275
295
315
Jan
-07
Mar
-08
May
-09
Jul-
10
Sep
-11
No
v-1
2
Jan
-14
Mar
-15
May
-16
Jul-
17
Sep
-18
No
v-1
9
Jan
-21
Oil-Related Jobs in Houston (000)
High Medium Low
U.S. Economy Continues to Work for Houston
U.S. Economy Continues To Grow Strongly And Create Jobs
• Assume in all scenarios that the U.S. economy has put the Great Recession behind it
• Consumer has deleveraged; state and local governments are collecting revenues at a healthy rate and spending; the housing market has returned to close to normal
• U.S. job growth is at 1.7 percent or about 200,000 jobs per month throughout the forecast horizon
• We see the export sector, especially manufacturing struggling with the strong dollar, but domestic growth is robust
Last Year a Split Emerged Between Growth In Production And Jobs
GDP Growth Has Slowed Sharply in Recent Quarters
-2
-1
0
1
2
3
4
5
6
1/1
/20
12
6/1
/20
12
11
/1/2
01
2
4/1
/20
13
9/1
/20
13
2/1
/20
14
7/1
/20
14
12
/1/2
01
4
5/1
/20
15
10
/1/2
01
5
3/1
/20
16
8/1
/20
16
% Change at Annual Rates
While U.S. Job Growth Remains Quite Strong
300.0
400.0
500.0
600.0
700.0
800.0
900.0
20
12
Q4
20
13
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
14
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
000 New Jobs Per Quarter
Results Are Consistent With Robust Domestic Growth And Weak Exports
Productivity Growth Is Slow
-4
-2
0
2
4
6
Jan
-00
Ap
r-0
1
Jul-
02
Oct
-03
Jan
-05
Ap
r-0
6
Jul-
07
Oct
-08
Jan
-10
Ap
r-1
1
Jul-
12
Oct
-13
Jan
-15
Ap
r-1
6
% Change in Productivity 12 Quarter Average
Weak Export Sector
-10
-5
0
5
10
15
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
% Change Annual Rates
Smoothed U.S. Recession Probabilities
(percent chance of recession)
0
10
20
30
40
50
60
70
80
90
100
Subprime Blows Up
US Financial Crisis
Currently less than 1%
Percent
2001 Recession
Source: Chauvet and Piger smoothed recession probabilities, FRED, St. Louis Fed
Downstream Boom Offsets Upstream Bust
Low Oil Prices Keep Gulf Coast Refining Margins Strong
($/bbl)
0
5
10
15
20
25
30
margin
Six-mo avg
Pace refining margins, Oil and Gas Journal
Natural Gas Shares Oil’s Hockey Stick Surge In Production
1.25
1.45
1.65
1.85
2.05
2.25
2.45
Marketed production, Tcf/mo, seasonal adj
DOE/EIA
Natural Gas Prices Collapsed In Late 2011
($/mcf)
0
2
4
6
8
10
12
14
DOE/EIA
$164 Billion U.S. Construction Boom Is Based On Cheap Energy
• This $164 billion total includes many industries and all of the U.S.
• New ethylene crackers, more ethylene-related expansion in PE, PVC and other derivative plants
• LNG export terminals to sell surplus natural gas into global markets
• Refiners have joined in with additional expansions
Note: The $164 billion figure is based on all U.S. shale-related expansion, estimated by the American Chemistry Council in April, 2016
Natural Gas Energy Content Now Equivalent $15 per Barrel
For Oil
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
Jan-01 Feb-03 Mar-05 Apr-07 May-09 Jun-11 Jul-13 Aug-15
oil $/b
nat gas $/b
DOE/EIA and calculations of the author
Ethylene Margins (cents per pound)
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
Large Projects Headline Over $50 Billion In East Houston Construction
Company Location Project Completion Value ($ mil)
Exxon Baytown Ethylene 2017 $5,000
Chevron Freeport Ethylene 2017 $4,000
Dow Baytown Ethylene 2017 $3,500
BASF Freeport Ethylene 2017 $3,000
Freeport LNG Freeport LNG Export 2019 $3,000
Freeport LNG Freeport LNG Export 2020 $3,000
Bayer Baytown PUR Facility 2021 $2,000
CPV Freeport Gas to Polypropylene 2017 $1,500
Freeport LNG Freeport Methane to Propylene 2018 $1,400
Projects Begin To Wind Down Rapidly After 2017
(Value of Projects Completed, $ million)
$8,319
$22,706
$4,980 $4,000
$3,000 $2,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2016 2017 2018 2019 2020 2021
Put It All Together
• Three oil scenarios: high, medium, or low. High sees solid recovery now underway in drilling; medium sees strength delayed until early 2017; low until late 2017
• Continued U.S. expansion at moderate rates
• The end of most of the petrochemical construction on the East Side. Some new construction, but nothing to replace the boom-time construction that finishes
• Data revisions that point to possible mild local recession in in early 2016.
Preliminary: Forecast Job Growth In Houston: 2014-2021
(000 New Jobs, Q4/Q4)
By Scenario
Year High Medium Low 25/60/15
2014 112.7 112.7 112.7 112.7
2015 10.3 10.3 10.3 10.3
2016 10.2 10.2 10.2 10.2
2017 60 40 10 38
2018 70 45 15 43
2019 80 60 35 58
2020 85 70 50 72
2021 90 75 65 77
Calculations of IRF, based on drilling scenarios above. Figures are Q4/Q4. The 2016 calculations include benchmark revisions of March 2017.
Net Migration Follows Job Growth: Turnaround in Population Comes Slowly!
• When population grows, net migration gives the biggest economic stimulus
• As job growth rises, net migration begins to rise a year later
• In recovery, net migration falls a year behind
• Data at right matches 25/60/15 weighted employment forecast, sees a 2018/19 trough with about 30,000 net migrants 0
20
40
60
80
100
120
2014 2015 2016 2017 2018 2019 2020 2021
Annual Increase: New Jobs vs. Net Migration
(Index: 2014 = 100)
New Jobs
Net Migration
Existing Home Sales: Beware the Averages
Existing Home Sales Flat In Houston Since 2012
(sales, s.a.)
3500
4500
5500
6500
7500
8500
9500 • Flat since 2012? First, due to lack of existing and new home supply, now due to shift to downscale market
• Median home prices rose rapidly after 2011, at 9.4 percent annually from 2012-2014
• 2016 saw continued high level of sales, some relief on inventories, prices rising more slowly
Source: Texas A&M Real Estate Center
Strong Growth And Lot Shortages Distorted Single-
Family Housing Market
2
3
4
5
6
7
8
9
Jan
-08
No
v-0
8
Sep
-09
Jul-
10
May
-11
Mar
-12
Jan
-13
No
v-1
3
Sep
-14
Jul-
15
May
-16
Months Supply
140
160
180
200
220
240
Jan
-08
No
v-…
Sep
-09
Jul-
10
May
-…
Mar
-…
Jan
-13
No
v-…
Sep
-14
Jul-
15
May
-…
Tho
usa
nd
s
Median Price
Source: Texas A&M Real Estate Center, seasonal adjustment by IRF
Ship Channel Cities Baytown, Channelview, Pasadena
80
90
100
110
120
130
140
150
160
150
170
190
210
230
250
270
290
Tho
usa
nd
s
Sales and Home Prices Rising
Sales Price
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
Inventory only 2.5 months
Inventory
Source: Texas A&M Real Estate Center, calculations of IRF
South Houston South Belt, Clear Lake, League City
100
120
140
160
180
200
220
240
250
300
350
400
450
500
Tho
usa
nd
s
Sales flat, prices rising
Sales Price
1.4
1.6
1.8
2
2.2
2.4
2.6
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Not much left to sell with two months inventory
Inventory
Source: Texas A&M Real Estate Center, calculations of IRF
Close-In Rice Military, Heights, Galleria
80
130
180
230
280
330
380
430
150
170
190
210
230
250
270
290
Tho
usa
nd
s
Sales and Prices Sag in 2015-16
Sales Price
3
3.5
4
4.5
5
5.5
6
6.5
7
Inventory falling again as oil prices rise?
Inventory
Source: Texas A&M Real Estate Center, calculations of IRF
South Of I-10 West Memorial and Energy Corridor
0
100
200
300
400
500
80
100
120
140
160
180
Tho
usa
nd
s
Prices hold up, sales recover on better oil price?
Sales Price
1.5
2.5
3.5
4.5
5.5
Inventory falls as sales pick up
Inventory
Source: Texas A&M Real Estate Center, calculations of IRF
The Woodlands Cools Off
250
300
350
400
150
170
190
210
230
250
270
Tho
usa
nd
s
Sales down, Price trying to recover
Sales Price
2.53
3.54
4.55
5.5
Inventories stabilizing near 5.0 months
Inventory
Source: Texas A&M Real Estate Center, calculations of IRF
Other Distant Suburbs Pearland, Sugar Land, Kingwood, Katy
200
220
240
260
280
300
300
500
700
900
1100
1300
1500
Tho
usa
nd
s
Sales flat & price increases slow
Sales Price
1.5
2
2.5
3
3.5
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Inventories remain very low, Not much to sell
Inventory
Source: Texas A&M Real Estate Center, calculations of IRF
Top-end Buyers Lost To Oil Bust, Bottom Of The Market Wants Back In • High-end market for executives and
professionals is gone for the next couple of years
• There are 2.3 million households in Houston. Every time affordability ticks up one percent, it locks 23,000 families out of the market.
• Affordability down 4-5 percent means over 100,000 families were pushed out since 2013
• They have household incomes of $65-$70,000 and can qualify for $250,000 product. Can we deliver near this price point?
40
50
60
70
80
90
Affordability Index: Percentage of Houston households that
can afford median priced home
Wells Fargo Housing Opportunity Index
Close-In and West See Single-Family Sales Sag, Inventories Rise, Prices Flat
Monthly Sales Median Price(000) Inventory
2014 Peak Feb 2017 2014 Peak Feb 2017 2014 Peak Feb 2017
Metropolitan Area 7298 7112 200.9 228.4 2.7 3.9
Close-in* 272 216 402.1 382.4 3.8 5.0
Rice Mil/WashAve. 67 45 453.3 423.1 3.2 5.3
Heights 147 120 445.2 430.0 4.3 4.5
Galleria 66 51 312.1 294.1 3.0 5.8
South of I-10* 148 132 384.8 405.9 1.8 4.4
Energy Corridor 80 63 299.4 328.2 1.6 4.3
Memorial West 75 69 471.3 483.7 2.0 4.4
Spring Branch 103 111 320.8 371.8 2.8 5.4
Woodlands 229 167 355.8 326.2 3.1 4.8
Alief 87 83 123.7 147.9 1.8 2.9
(*) denotes the sum of the sub-categories; all data seasonally adjusted and may not add to totals; sales and price are 3-month moving averages
Rest of Metro Single Family: Little Left to Sell, Prices Still Rise
(*) denotes the sum of the sub-categories; all data seasonally adjusted and may not add to totals; sales and price are 3-month moving averages
Monthly Sales Median Price Inventory
2014 Peak Feb 2017 2014 Peak Feb 2017 2014 Peak Feb 2017
Metropolitan Area 7298 7112 200.9 228.4 2.7 3.9
Ship Channel* 233 264 124.3 147.4 2.7 2.5
Baytown 85 86 139.5 150.8 2.6 2.3
Pasadena 77 78 118.4 148.6 2.3 1.7
North Channel 78 99 116.5 142.9 3.1 2.9
South Houston* 458 393 192.2 231.7 2.0 2.3
Friendswood 74 62 219.1 246.3 1.6 2.2
Clear Lake 131 125 193.5 229.1 2.0 2.1
League City 190 171 216.6 264.4 2.2 2.4
South Belt 75 59 142.8 178.5 1.3 2.0
Suburbs* 1,311 1,163 253.4 285.7 2.2 2.9
Kingwood 124 95 230.0 240.6 1.5 2.9
Katy 510 425 261.5 264.0 2.5 3.3
Cypress 300 296 245.8 266.9 2.2 2.6
Pearland 214 195 231.8 265.1 1.5 1.8
Sugarland 178 153 390.3 392.0 2.1 3.9
New Home Sales Also Shift Down to Smaller Lots and Houses
Single-Family Permits Softer in 2016 But Still Totaled 35,000 (monthly permits at annual rates, s.a.)
0
1
2
3
4
5
6
Tho
usa
nd
s
Texas A&M Real Estate Center
Rising Land Prices Drove Cost Of New Homes
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Land Drives Cost of Houston’s New Home Construction
Since 2012 (Index: 2000Q1 = 1.00)
Home Price Land Price
Structure Cost
$0
$50
$100
$150
$200
$250
Tho
usa
nd
s
Spike in Land Prices Added $40,000 To Typical New
Home After 2012
Structure Land
Source: Lincoln Institute of Land Policy
Market Shifts To Moderate Priced Homes On Smaller Lots
4421
10313
6197
3083
1207 1000 260 468
0
2000
4000
6000
8000
10000
12000
2016 closings at annual rate by Price range $000
26
17 16
21 19
23
30
40
0
5
10
15
20
25
30
35
40
45
<45 45-50 50-54 55-59 60-64 65-69 70-79 >80
Current lot supply in months & by lot size
MetroStudy
Frontage in feet
Where Does the Houston Economy Go Now? Oil Prices Still the Key
Robert W. Gilmer, Ph.D.
C.T. Bauer College of Business April 2017