Houston Prepares for Economic Crisis

Slowing home sales, falling property values, and growing unemployment are ringing alarm bells in oil-dependent Houston.  Last week, the Houston Association of Realtors released a report showing that home sales are falling. In total, single-family home sales fell 2.4 percent on a year-over-year basis in 2014.

Slowing home sales, falling property values, and growing unemployment are ringing alarm bells in oil-dependent Houston.  Last week, the Houston Association of Realtors released a report showing that home sales are falling. In total, single-family home sales fell 2.4 percent on a year-over-year basis in 2014.

In suburban-dependent Houston where condominium stock is minimal, the decline has caused some analysts to ring alarm bells about the future of the singular economy of the city.  At the same time, some analysts say that 2012 to 2014 were boom years for the city and so it is difficult to maintain that pace. Speaking to the Houston Chronicle, Community Development Strategies President Steve Spillette said that the slowdown does not indicate a crisis as much as a decline in a boom.

“We have to remember the housing market from 2012 through 2014 was really quite extraordinary. It was really an overheated market,” he said, while noting Houston was “adding so many jobs, and we really couldn’t catch up.”  Instead of pointing to a recession or severe market decline, Spillette said the city’s growth rate is likely to moderate from the boom years: “the hiring boom that drove so much of that increase in population and households in our region, that’s over,” he said.

Economic Disagreement on Housing

Spillette’s view is far at the periphery of many mainstream economists, who note that 2012 to 2014, far from a boom period for the country, was a period of secular stagnation and weak growth.  Year-over-year growth rates for employment, home prices, and other metrics look strong nationwide, including Houston.  However, much of that was attributable to the slow recovery following the Global Financial Crisis in 2009.

Housing economist Tom Lawler, Founder of Lawler Economic & Housing Consulting LLC, argued in December that the rosy picture of the Houston Association of Realtors has little support in the data.

“Earlier this week I sent out a message with a link to the Houston Association of Realtors report showing that MLS-based home sales in the Houston metro market showed a double digit YOY decline for the second straight month in November, and that total property listings were up by over 20 percent from a year earlier.”

Lawler expressed his view in Bill McBride’s Calculated Risk, which was famous for predicting the housing crisis from 2008 to 2009 and slow recovery since then.

Other economists have also noted that Houston will struggle to sustain real estate price growth, since prices have reached new all-time highs in the metropolitan area. According to Black Knight’s House Price Index, Houston reached a new high in April 2015 and has climbed steadily since then.

Weak Employment Data

Data is worsening for the labor market in Houston as well. According to the Labor Department, unemployment in Houston rose 0.6 percentage points to 4.9 percent in Houston. That was the largest increase in unemployment growth of cities with a population of 1 million or more.

Of all cities and towns, the largest increase in unemployment occurred in Odessa, Texas, which rose 1.9 percentage points to 4.9 percent.  Like Houston, Odessa is heavily dependent on the oil industry for its local economy.  Throughout Texas, 2015 saw 11,000 jobs per month added versus 31,100 jobs added each month in 2014. That rate expects to slow, and possibly go negative, in 2016.