As I mentioned in my live-blogging at MetroTex Association of Realtor’s annual “state of the DFW Real Estate union” that happened today, Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University, told 300 plus DFW real estate agents that we might expect a slowdown in the frenetic market we are experiencing, to what he called a “new norm”: 2.3% growth instead of the 3, 4, or 5% we have been seeing.
“Forecast for 2016 sees slower D-FW real estate, fewer job gains”
Gaines said prolonged lower oil prices and job cuts in the energy industry will result in slower growth in Texas.
The impact hasn’t really been felt yet, he said.
“We went through this in the ’80s — there is a lag effect of when those prices come down and it really hits the economy,” Gaines said. “It’s anywhere between one to three years.
“We know that it is going to impact the state’s economy — it’s going to affect employment throughout the state,” he said. “It’s coming, but it hasn’t hit yet.”
Gaines predicted that even in North Texas, which has less exposure to the energy industry than other regions do, employment gains will moderate next year.
“But the slowdown is from a record high to a little bit less,” he said. “Growth in Dallas-Fort Worth has accelerated enormously.
But the slowdown is from a record high to a little bit less,” he said. “Growth in Dallas-Fort Worth has accelerated enormously.
That headline is technically accurate, but I was at the same presentation — there is more to the story.
Houston is hurtin’, said Gaines in so many words — loss of oil jobs. Midland, too. Dallas & Fort Worth, Plano and all, not so much. The energy sector is definitely down and $80 a barrel oil is not in the wings. But — Gaines said North Texas will still see growth in high tech, healthcare (all those doc in the boxes sprouting up like banks in high net worth neighborhoods), and professional and business services. The population expansion continues. But the local growth issues are a strain on our in-state and local resources.
Texas produces 50% of the nations’ oil, and we are still the homebuilding capital of the world. Gaines played Letterman and gave us the Top 10 Macros Issues Facing Texas Real Estate Today:
- Changing demographics — first time homebuyers are increasingly millennials, and they have changing lifestyles and buying habits. Adjust accordingly.
- Capital: foreigners are coming in (even those Rip-off artists Chinese and Russians) and buying up real estate with CASH.
- Interest Rates: prepare for them to go a little higher. But the increase won’t kill us, could hurt buyers on the credit fringes
- Credit terms and availability — Washington is finally slackening the reins on lending
- Urbanization: 2 out of 3 live in the big MSAs in Texas, and more people are heading there.
- Home Affordability could be a problem: looking at Gaines charts, it appears that the median price of a home in DFW is not near $280,000. That’s a lot better than the average home price in the Bay area, or LA, or metro New York or D.C. but that’s high for us. What do people who can only afford $150k for a house live?
Home affordability may be a bigger problem in Dallas-Fort Worth, given that home price increases have been outpacing wage gains that in the area.
“We have smaller household income today in real terms than we had in 1999,” Gaines said. “Affordable workforce housing is going to be a major issue.
“We are not building enough houses in the $150,000-to-$200,000 bracket.”
- Lower gas prices may be bad news for the oil industry, but it’s great news for consumer and makes the suburbs more attractive to buyers.
- Someone moves to Texas every five minutes. But watch development, design, density and water
- The average age of major life’s events is changing. Baby Boomers are working longer, whether by choice or necessity.
- Texas is still the home-building capital of the world, with a 58% home ownership rate. We are not even back up to average for single family starts, and home construction is hampered by labor shortages and higher land costs, here and across the country. Still, we are one of the five top home-building markets, and we built more homes last year than even California did. So there.
My take-away from today (and chatting with the agents): the market is already simmering down. As Dave Perry-Miller told me earlier this week, it’s still busy, just not as frenetic. I do see home prices on the upper end of the luxury market softening, or home prices that may have been over-reaching, pulling back. But beautiful, exciting product will still fly off the shelves, and the under $700K market is still extremely hot because of demand.
What are you seeing?
