For many years, I have been a fan of the foremost expert on the Houston economy, Dr. Barton Smith from the Institute for Region Forecasting of the University of Houston (www.uh.edu/irf). This week, I was privileged to get a sneak preview of his upcoming symposium.
As the old joke goes, there is some good news and some bad news. Here are my notes from the lecture….
- Good News – A recovery is definitely underway!
- Good News – Of the two big bullets which flattened the rest of the country, the Houston economy was hit by one (the stock market collapse) and mostly missed the other (the housing crunch).
- Good News – National housing prices have dropped back to affordable rates (see the chart above).
- Good News – The Houston economy did not suffer from the over-inflated home values of the rest of the country; hence, our housing correction has been shorter and less difficult.
- Good News – House prices in Houston are essentially flat to a year ago. As far as I'm concerned, stable is good!
- Good News – Houston’s recover was predicted to lag behind the rest of the country. Instead, we are recovering right along with them.
- Good News – Houston housing starts have dropped to 60% their 2006-07, thereby helping to reduce excess inventory and stabilize prices. The housing industry’s response was much faster this time than during the housing crunch of the 80’s.
- Good News – The conventional wisdom has the US becoming a service economy. Actually, manufacturing employment is leading the jobs recovery.
- Good News – The dollar is down, and US export markets abroad are expanding.
For the Bad News....
- Bad News– The apartment market remains overbuilt. Katrina survivors soaked up a significant portion of the rental market, but this should have been recognized as a short term event.
- Bad News– Commercial real estate values have dropped significantly, with negative impact on sales and financing.
- Bad News – Prime mortgage defaults are climbing and have not yet peaked, unlike subprime mortgage defaults, which have begun to taper off.
- Bad News – The Federal Reserve still needs to liquidate one trillion dollars of mortgage backed securities, which were purchased to prop up the credit markets during the financial crisis. How's the market gonna like THAT?
- Bad News – State and local governments are hurting badly and facing huge budget shortfalls. A very painful correction is expected at this level.
- Bad News – Federal government deficits have doubled relative to the past decade, and are predicted to remain at that level through at least 2016. Deficits at this level may not be sustainable for the national economy.
Dr. Smith concluded by saying that “every recession has a purpose that must be fulfilled before an economic rebound can permanently take hold.” By this yardstick, the Houston economy - and the national one - still have hard work ahead.
Dr. Smith himself is retiring this year. I wish him well, but must say that his steady hand and sensible analysis will be sorely missed!