Economic Outlook for Central Texas Real Estate
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Economic Outlook for Central Texas Real Estate. Dr. James P. Gaines Research Economist Real Estate Center Texas A&M University [email protected] News. Publications. RECON Newsletter. Data. Market Reports. Tierra Grande

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Economic Outlook for Central Texas Real Estate

Dr. James P. Gaines

Research Economist

Real Estate Center

Texas A&M University

[email protected]


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News

Publications

RECON Newsletter

Data

Market Reports

Tierra Grande

is our quarterly magazine with timely research and analysis of the trends and events shaping Texas real estate today. Experts on appraisal, housing , finance, law, demography, economics, investment and other areas share insights unavailable anywhere else.

Building permitsEmploymentHome SalesHousing AffordabilityPopulationRural Land

You'll be an insider – if you subscribe to our electronic newsletter RECON. RECON is an acronym for Real Estate Center Online News. It's a twice-weekly briefing on Texas real estate news. Currently more than 20,000 subscribers worldwide are signed on. Best of all, RECON is free.

Planning to invest in Texas real estate? Are you looking for local real estate market information for Texas cities? Click here for extensive data for every metro area in the Lone Star state. Our reports include employment trends, population, residential, multi-family, office, industrial and retail information.

RECONNews ReleasesEvents CalendarVideosTRECI Index

Events Calendar

Happy New Year! The staff of the Real Estate Center wish you and yours a happy and prosperous new year! This year marks the 35th anniversary of the Real Estate Center. In 1971, Gov. Preston Smith signed legislation creating the Texas Real Estate Research Center and placed it at Texas A&M University.

Instructor Training Courses, May 18-19, College Station, Texas. The Legal Update and Ethics instructor training courses include credit for the required 3-hour Legal Update course and the required 3-hour Ethics course. In addition, each instructor training course will include a brief orientation to the teacher’s manuals for each course as well as a discussion of training issues.

REAL ESTATE CENTER

at TEXAS A&M UNIVERSITY

Mays School of Business

http://recenter.tamu.edu



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Summary of the “Great Recession”

  • A 0% funds rate, $1.4 trillion annual deficit and a $2.2 trillion Fed balance sheet

  • Approximately $3.5 Trillion in total government stimulus

  • Nearly one-third of homeowners have negative equity

  • 1 in 6 are either unemployed or underemployed.

  • 1 in 7 homeowners either delinquent or in the foreclosure process

  • Small business failures are up 44% y/y

  • 20% - 30% slide in home prices

  • 50% plunge in commercial real estate values


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Percent Growth in Real GDP Since 2000 Seasonally Adjusted Annual Rate

An uninspired 2.7% increase during first half of 2010

Source: Bureau of Economic Analysis


Personal consumption expenditures l.jpg

Personal consumption represents about 70% of US economy and is showing signs of recovery

Personal Consumption Expenditures

Source: Department of Commerce, SAAR


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Consumer Confidence Index is showing signs of recovery

7 cycles since 1967:

Avg. during recession = 72

Avg. at end of recession = 71.5;

Avg. during an expansion = 102

Source: The Conference Board (1985=100)


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Annual Employment Growth Rates for US and Texas is showing signs of recovery

Texas

US

Source: BLS


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Annual Employment Growth Rates for US, Texas and Austin MSA is showing signs of recovery

Austin

Texas

US

Source: BLS, TWC, Real Estate Center at Texas A&M University


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Measures of Un- and Underemployment is showing signs of recovery

Percent SA

U-6, the broadest measure

Headline Rate

Source: BLS


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Measures of Un- and Underemployment is showing signs of recovery

Percent SA

U-6, the broadest measure

Headline Rate

Austin

Source: BLS


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Unemployment Rate by Level of Education is showing signs of recoveryJune 2010

Source: BLS , 25-years old +; Seasonally adjusted rates


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Small Business Outlook is showing signs of recovery“Planning To Hire People In The Next Six Months”

Source: National Federation of Independent Business


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Are There Secular Changes Going On Given Economy, Credit Collapse and Household Net Worth Implosion?

  • Debt & Savings

  • Discretionary spending patterns

  • Homeownership

  • Financial System & Banks


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A Thought from Maxine Collapse and Household Net Worth Implosion?

"BAIL EM OUT! ????”

Wow, back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it.

They failed, and it closed.

Now we are trusting the auto industry, the banking system and healthcare to the same nit-wits who couldn't make money running a whore house and selling whiskey!


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Looking Ahead to 2010 & 2011 Collapse and Household Net Worth Implosion?


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Our Last Economic and Housing Forecasting Staff Meeting Collapse and Household Net Worth Implosion?


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Major Hurdles for 2010 & 2011 Collapse and Household Net Worth Implosion?

  • State, local and school districts’ falling revenues

  • Credit contraction continues – business, consumer credit, mortgages

  • Jobs, income and spending

  • Pending changes in laws, regulations and taxes – capital gains tax; cap and trade; financial institutions & banking regs – UNCERTAINTY!

  • “Extend & Pretend” in banking system

  • “Foreclosure-gate”

  • Psychological malaise


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Texas Scenarios for 2010-2011 Collapse and Household Net Worth Implosion?

  • Texas lagged into recession may be leading out

  • Expect job losses to stop and new jobs to start being created, 1.5% maybe 2% job growth in 2010

  • Natural gas prices and activity just as important as oil prices

  • Flat housing sales and prices until economy truly recovers

  • Small and regional bank problems to work out

  • State, local and school districts financial problems just really starting

  • In-migration should reinvigorate economic growth and housing markets


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Texas Index of Leading Indicators Collapse and Household Net Worth Implosion?

(1987=100)

Source: Federal Reserve Bank of Dallas


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Texas Retail Sales Monthly Collapse and Household Net Worth Implosion?SEASONALLY ADJUSTED , BILLIONS OF DOLLARS

Source: Federal Reserve Bank of Dallas


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The Housing Market Collapse and Household Net Worth Implosion?


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Current Housing Trends Collapse and Household Net Worth Implosion?

  • Tax credit & direct subsidies over

  • Household creation very slow; generational housing preferences changing

  • Purchase mortgages much more difficult to obtain – tight underwriting

  • Renting a more viable option

  • Appraisals are major issue in purchases

  • Jumbo home loans and ADC loans difficult

  • Housing deflationary expectations


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Lost Wealth: Households’ Equity in Real Estate Collapse and Household Net Worth Implosion?

$6.2 trillion or 47% in lost real estate equity

RE Equity about where it was in 1999-2000

Source: Federal Reserve, Flow of Funds, B-100


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Total HH Home Mortgage Borrowing Collapse and Household Net Worth Implosion?

$0.5 trillion between 1972 and 1979;

$1.5 trillion between 1980 and 1989;

$2.1 trillion between 1990 and 1999;

$6.1 trillion between 2000 and 2007

Source: Federal Reserve, Flow of Funds, D-2


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First-Time Home Buyers Collapse and Household Net Worth Implosion?(Percent of Total Home Buyers)

Top Four Reasons for First-Time Buyers:

Desire to Own (62%)

Current Affordability (10%)

Change in Family Situation (8%)

Tax Credit (6%)

Source: NAR, 2009 Profile of Home Buyers and Sellers


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US Mortgage Collapse and Household Net Worth Implosion?Delinquency Rates

US mortgage delinquency rate set all time high in 4Q2009

Subprime Mortgages

All Mortgages

Prime Mortgages

Source: Mortgage Bankers Association, National Delinquency Survey


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Monthly Foreclosure Filings Collapse and Household Net Worth Implosion?

Texas foreclosures have been far more stable than US

Source: RealtyTrac, Inc.

Data include Notices of Trustee Sales plus Notices of Foreclosure Sale


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New and Existing SF Home Sales U.S. Collapse and Household Net Worth Implosion?

(000s)

Existing SF sales are down 21% from 2005 peak

1980-1989 3.55 million per year

1990-1999 4.7 million per year

2000-2006 7.15 million per year

2007-1H2010 4.3 million per year

New SF sales are down 78% from 2005 peak

Sources: US Census Bureau , NAR, NAHB, NBER


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Distressed Home Sales Collapse and Household Net Worth Implosion?

Total Distressed Sales

Foreclosures

Short Sales

Source: NAR


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Number of Housing Units Vacant and Held Off Market Collapse and Household Net Worth Implosion?

Total inventory of vacant units may be closer to 9 million, including condos, foreclosures and other properties effectively vacant

Source: US Census Bureau


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Annual U.S. Median Existing Home Price Percent Change Collapse and Household Net Worth Implosion?

Since 2005, median price of a SF home is down 23.5%

Source: NAR


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US Median Home Prices Since 1990 Collapse and Household Net Worth Implosion?

National House Price Bubble

12-Month Moving Average Since 2001

1990-2000 Trend

Source: NAR, Real Estate Center at Texas A&M University


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National Housing Affordability Index Collapse and Household Net Worth Implosion?

Average 1994-2003 = 132.4

Drop of 31.5% from April 2003 to July 2006

Source: NAR Composite Index


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US Total Housing Starts Collapse and Household Net Worth Implosion?TotalUnits & 12-Month Moving Average

Monthly Units

12-Month

Moving Avg.

Source: US Census Bureau, Real Estate Center at Texas A&M


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Has the Housing Market Bottomed? Collapse and Household Net Worth Implosion?

Answer: maybe, hopefully, probably. But we still may not really know for sure for another several months.

  • Can the market sustain itself without massive Federal government help

  •  Foreclosures will stay high. A large number of Option-ARM and prime ARM mortgages reset starting this quarter and going through all next year and into 2011.

  • The health of the housing market, nationally and locally, depends on a general economic recovery - especially stopping the loss of jobs and preferably adding new jobs.

  • The housing market may have bottomed out, but will probably have a long, slow recovery – think 5 to 10 years, not just one or two.


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Number of Years to Clear Available Inventory Collapse and Household Net Worth Implosion?

When and How Does the Housing Market Go Back to “Normal”?

* 2009 annual sales level

Somewhere between mid-2012 and 2014


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Texas & Austin Housing Markets Collapse and Household Net Worth Implosion?


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Texas Single- Family Market Collapse and Household Net Worth Implosion?

Source: Real Estate Center at Texas A&M University; NTREIS

* 12-month moving average to date; # 3Q2009 vs. 3Q2010


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Texas Single-Family Market Collapse and Household Net Worth Implosion?3Q2010

Source: Real Estate Center at Texas A&M University


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Annual Texas Collapse and Household Net Worth Implosion?Home Sales

2009 = sales down 8% from 2008 levels

2010 should be relatively flat about equal to 2001-2003 levels

Source: Real Estate Center at Texas A&M University


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Texas Home Sales Collapse and Household Net Worth Implosion?12-Month Moving Average

Source: Real Estate Center at Texas A&M University


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Texas Months Inventory of Homes For Sale and FHFA Appreciation Rate

Months Inventory

Appreciation Rate

Average Annual Appreciation = 3.9%

FHFA Appreciation Rate

Source: FHFA, Real Estate Center at Texas A&M University


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Texas Median Home Prices Appreciation Rate

Essentially flat in 2008 & 2009

2010 should hold steady

Source: Real Estate Center at Texas A&M University


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Texas Median Home Price Appreciation Rate12-Month Moving Average

Current prices are about 8% below trend

Source: Real Estate Center at Texas A&M University


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Texas SF Building Permits Appreciation Rate

1984 82% of 1983 peak

1985 66% of peak

1986 57% of peak

1987 43% of peak

1988 35% of peak

2006 98% of 2005 peak

2007 72% of peak

2008 49% of peak

2009 41% of peak

2010p 42% of peak

Source: US Census Bureau, Real Estate Center at Texas A&M


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Texas Appreciation RateMonthly SF Permits12-Month Moving Average

2003 Trend Line

Source: US Census Bureau, Real Estate Center at Texas A&M


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Austin Single- Family Market Appreciation Rate

Source: Real Estate Center at Texas A&M University; NTREIS

* 12-month moving average to date ; # 3Q2009 vs. 3Q2010


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Austin Single-Family Market Appreciation Rate3Q2010

Source: Real Estate Center at Texas A&M University


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Austin Annual Home Sales Appreciation Rate

2009 down 7%

2010 Flat ~ 2003-2004 levels

Source: Real Estate Center at Texas A&M University


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Austin Monthly Home Sales Appreciation Rate12-Month Moving Average

Current monthly sales are about equal to 2004 levels

Source: Real Estate Center at Texas A&M University


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Austin Median Home Prices Appreciation Rate

2010 up about 2%

Source: Real Estate Center at Texas A&M University


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Austin Median Home Prices Appreciation Rate12-Month Moving Average

Median home prices have nearly regained the peak in October 2008

Source: Real Estate Center at Texas A&M University


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Austin Months Inventory of Homes For Sale and FHFA Appreciation Rate

Months Inventory

Appreciation Rate

FHFA Appreciation Rate

Average Annual Appreciation = 5.2%

Source: FHFA, Real Estate Center at Texas A&M University


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Price Distribution of Appreciation RateAustin MLS Homes Sold: 2000 vs. 2010e

Median Price

2000 $ 144,500

2005 $ 161,300

2010 $ 189,900

00 Median

05 Median

‘10 Median

Source: Real Estate Center at Texas A&M University


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Austin SF Building Permits Appreciation Rate

1985 63% of 1984 peak

1986 59% of 1984 peak

1987 27% of 1984 peak

1988 24% of 1984 peak

1989 22% of 1984 peak

2007 69% of 2006 peak

2008 44% of 2006 peak

2009 38% of 2006 peak

2010p 33% of 2006 peak

Source: U. S. Census Bureau, Real Estate Center


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Austin SF Building Permits Appreciation Rate12-Month Moving Average


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Austin Multi-Family Building Permits Appreciation Rate

574 units permitted so far in 2010.

Source: US Census Bureau, Real Estate Center at Texas A&M University


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Texas – Poised for a 21st Century Boom Appreciation Rate

  • Population and Economic growth

  • Low cost, available labor

  • Pro Growth Attitude

  • Migration into State from elsewhere

  • Attractive Retirement Area

  • Pressure on infrastructure, government services, public finance

  • Most affordable state for land, housing and overall cost of living


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2000 – 2009 States with Population Increases > 1 million Appreciation Rate

Source: U.S. Census Bureau

Table 4: Cumulative Estimates of the Components of Resident Population Change for the United States, Regions, States, and Puerto Rico: April 1, 2000 to July 1, 2009


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Top Growth MSAs 2000-2009 Appreciation Rate

Since 2000, DFW added more than 1.28 million people; Houston added more than 1.15 million people; Austin added more than 455,000; and San Antonio added more than 360,000

Source: U.S. Census Bureau


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Population Growth 1999-2009 Appreciation Rate

Texas

U.S.

Austin

Source: U.S. Census Bureau


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Texas Urban Triangle Appreciation Rate

58,410 square miles

Longest distances:

362 miles N-S

315 miles E-W

By 2040, 33.7 million people will live in the four principal metro areas in the triangle, a 120% increase

In 2007, 15.3 million people, about 90% of the total population in the area, lived in the four principal metro areas in the triangle


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Projected Texas Population Appreciation Rate

2000 - 2030

(000s)

At 50% 1990-2000 rate of immigration

At 2000-2007 rate of immigration

At 100% 1990-2000 rate of immigration

Between 9 and 18 million more residents between 2005 and 2030

Source: U.S. Census Bureau, Texas State Demographer 2008 Projections


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Austin MSA Population Appreciation RateAustin MSA: Bastrop, Caldwell, Hays, Travis & Williamson Counties

At 50% 1990-2000 rate of immigration

At 2000-2007 rate of immigration

At 100% 1990-2000 rate of immigration

On average about 1,450,000 more people or roughly double the 2005 population

Source: US Census Bureau, Texas State Data Center and Demographer


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Lake Travis Today Appreciation Rate


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Lake Travis in Appreciation Rate2050?


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Texas Age Distribution 2005-2030 Appreciation Rate

Boomers

2005

2010

Boomers

2020

2030

Boomers

Boomers


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Economic Outlook for Central Texas Real Estate Appreciation Rate

Dr. James P. Gaines

Research Economist

Real Estate Center

Texas A&M University

[email protected]


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