The Texas economy has been undergoing a mild recession, due to the oil price slump. The better news, however, is the Federal Reserve Bank of Dallas’ Texas Business-Cycle Index, which noted that Texas’ economy grew at a faster rate (4.5%) than its long-term average (3.9%) 1.
The even better news is that the Texas economy will continue expanding into 2017 2. A stronger economy means more job creation. Higher job creation means more people. And more people means a growth in housing demand.
PINPOINTING HOUSING TRENDS UNDER A TRUMP PRESIDENCY
The Nov. 8 U.S. presidential election capped off a nasty, volatile and uncertain political cycle. In between the rhetoric, Donald Trump did mention a few policy ideas. Unfortunately, few of those ideas focused on residential housing. As the President-Elect’s administration heads toward the White House, there is a decided lack of clarity on the housing industry.
ARE FIRST-TIMERS RETURNING TO THE HOUSING MARKET?
There is plenty of pent-up demand in the housing market, according to industry experts. Sooner or later, these experts point out, those currently sitting on the fence will climb off the fence, especially those who are looking at houses for the first time. And when that happens . . . watch out!
MORE JOBS, MORE PEOPLE . . . LESS HOUSING?
Recent good news for the Dallas-Fort Worth economy came from Jacobs Engineering Group and its announcement that it was relocating its global headquarters to downtown Dallas1. Jacobs is no stranger to DFW – the company has had a presence in the area for close to 30 years. But the move means that major operations are coming to the Dallas CBD, along with a workforce more than 700 strong.
Two noteworthy items coming out of the recent Urban Land Institute’s (ULI) Fall 2016 conference in Dallas were that Austin and Dallas were ranked first and second, respectively, in the “Emerging Trends in Real Estate, United States and Canada 2017” survey. The ULI conducts these surveys annually, in conjunction with PwC1. The survey polls those in the commercial real estate industry, asking them where the best investment and development opportunities are.
As we’ve written in previous blogs, millennials are regarded as the next age group to bring a lot of activity to the housing market. Certainly, many in this age group are delaying home-buying; they’re encumbered with high student debt and are putting off getting married and having families. Still, Zillow’s recent “Consumer Housing Trends Report 2016” generated some interesting insights in discussing the population group aged 18-341. Millennial home buyers are already having a great deal of influence on the home-buying process.
THE FRISCO EFFECT
In 1996, Frisco, TX was a quiet suburban town in the far-north Dallas Metro, boasting a population of approximately 10,000. There was no Dallas North Tollway to get folks quickly in to – or out of – town. At one point, when a Frisco resident approached Kroger Inc. about possibly opening a store there, she was told there weren’t enough rooftops to justify doing so.
In a recent article, we reported that Dallas-Fort Worth area home sales skyrocketed in August, with prices not so far behind. We also noted that low inventory and growing demand were driving sales and cost increases.A recent report from the National Association of Realtors (NAR) put a metric to the scarce supply concept, pointing out that 80% of the 171 markets measured demonstrated “inadequate new construction” when it came to housing.1 Going even more deeply into the data provided, the NAR reported that the Dallas-Fort Worth-Arlington TX Metropolitan Statistical Area (MSA) has a shortfall of 132,482 permits necessary to meet the demand (with demand measured as employment figures).2
Dallas-Fort Worth is, once again, breaking a few records when it comes to home sales. According to a recent article in the Dallas Morning News, home sales in August 2016 soared, after dipping in July. Furthermore, housing prices increased, while inventory continued low. The article then went on to say that, according to James Gaines, who is chief economist with the Real Estate Center at Texas A&M University, 2016 could end up a record year for housing transactions.
The inevitable question, of course, is whether this state of affairs can continue.
Beginning in the early 2000s, some residential home builders began mass-producing larger houses. In some areas, developers found plenty of lots on which to build such houses. Nor was it uncommon for a developer to buy two or three smaller older houses, combine the lots, and put a mega-house in its place.
Dallas and Fort Worth are different cities, with separate cultures, separated by approximately 60 miles. These two cities are, nonetheless linked by infrastructure (rail and roads) into one gigantic region known as the Metroplex. But D-FW might not be the only metroplex in the state. A March 2016 article in the Austin-American Statesman posed the question:“Will Austin-San Antonio become the Next DFW1?” The article quoted Steve Adler, Austin’s mayor and an analyst, who indicated that the long stretches of development along Interstate 35, combined with the rate of growth in Hays County (south of Austin) and Comal County (north of San Antonio) could lead to an eventual megaplex.
Just about anyone traveling around the Dallas-Fort Worth area these days will come across a slice of land, or two (or even three), on which houses are being built. In some neighborhoods, it seems as though new houses are being squeezed onto every bit of remaining property.
As such, it should come as no surprise that, as of mid-2016, the Metroplex topped the nation when it came to single-family housing starts, having broken ground on 29,626 new homes from Q2 2015-Q2 20161. In fact, DFW usurped Houston to take the top spot. The Bayou City and its surrounding suburbs had been number one in home-building but fell to second place, according to housing researcher Metrostudy.
The economic news about Texas has been middling to okay. Economists with the Real Estate Center at Texas A&M University point out that, while job growth and GDP slowed in June, housing demand and sales continues improving1.
Then there is Houston.
At the beginning of each summer, the Joint Center for Housing Studies of Harvard University (JCHS) issues its “State of the Nation’s Housing.” In the 2016 report, researchers noted that “by many measures, the US housing market has recovered substantially from the crash.” (1)
Despite this, the housing report itself is a mixed bag, something we’ll discuss in future blogs. This particular article deals with the question as to whether millennials will start buying houses.
Each month, the economists at the Real Estate Center at Texas A&M University (TAMU) issue a Housing Insight Report, filled with plenty of information about the Lone Star State’s economy and housing. The latest report (this one covering February 2016), shows how certain factors show why demand continues to outpace supply.(1)
Oil prices and export decreases led to a slow-down in the Texas economy. Additionally, the Residential Construction Leading Index (which measures changes in the residential construction business cycle) fell. Yet, single-family construction permits, total Texas housing sales, and housing sale prices increased. So even with increased housing permits, sales and prices, new construction starts for homes was down.
This is the third of four blog posts covering the Dallas Federal Reserve’s conference “Finding Shelter: Assessing Texas Residential Real Estate Amid the Oil Slump,” which took place Feb. 12 at the Dallas Federal Reserve.
In previous blog posts, we’ve mentioned that the Dallas-Fort Worth single-family housing market has been doing quite well. Home sales records were smashed in 2015, and metrics are likely to remain strong in 2016.
Mention “millennials” to some people, and what might come to mind are urban-living hipsters who hop jobs, are into sustainability and “talk” about their activities all the time on SnapChat, Twitter and Tumblr.
What might also come to mind are a group of young adults who seem to disdain homeownership for a variety of reasons. We’ve written about these reasons in the past – they range from lack of a down payment, too many student loans and a skepticism toward the American Dream of home ownership, due to the 2007-2009 financial collapse.