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UH Economist’s Forecast Says Energy Sector Key to Local Success HOUSTON, May 6, 2004 – Following a strengthening national recovery, Houston’s economy is gaining momentum and is now adding jobs, said Barton Smith, University of Houston economics professor, during his annual real estate symposium. The UH director of the Institute for Regional Forecasting addressed more than 1000 people at the Hyatt Regency Downtown at his real estate-focused program, “Playing the Waiting Game: The Different Perspectives of Residential and Commercial Property Interests.” “The annualized rate of seasonally adjusted job growth is running around 1.6 percent right now, a trend that will likely continue throughout the rest of this year. If energy prices remain firm (though not necessarily as high as they currently are), that along with the improved tone of the U.S. economy will stimulate the Houston region to the point of generating new jobs at a rate somewhat better than the national economy this year,” Smith predicted. In the absence of external surprises, the U.S. economy clearly has upward momentum that should result in a steadily improving economy this year, one that finally generates solid job gains each month. But with a little help from our region’s upstream energy sector, Houston should do even better. “However, the national economy will not be as strong as occurred in the mid-1990s nor will regional growth be as great as occurred during the ‘boom years’ in Houston in 1997 and 1998. The recovery will be subdued by continued worries over terrorism and international unrest and by a consumer who is somewhat overextended and not capable of the type of explosive spending spree seen in other recoveries,” Smith warned. “Furthermore, the anomaly of a strong housing market during a recession is likely to give way to the anomaly of a softening housing market during the recovery as interest rates begin to rise.” Smith predicted that by no later than 2006, many regions in the country will be experiencing a serious housing market correction where home prices not only stop rising, but also actually fall. However, at this year’s symposium Smith provided several reasons why Houston is likely to escape most of the pain of this national housing market slump. Furthermore, he said, that even the national correction precipitated by higher interest rates will not likely occur until next year. In the meantime, the home market will actually get an added boost as many households rush to buy housing before interest rates get much higher than they are right now. Other types of real estate will be less vulnerable to rising rates, but will struggle for several years with the burdens of excess supply. Rising interest rates will actually help the beleaguered apartment market as they eventually stem the flow of households from the rental to the owner market. Nonetheless, Smith warns that the worst is yet to come for this market as new supply will continue to pour into the market the rest of this year. “This market failed to heed our warning last year of the dangers of excessive new construction, and will now pay the price for most of the rest of this decade. Only if new supply were to totally end, might this market have a change to return to normal within 3 or 4 years, but I don’t expect that to happen,” Smith said. “The office market has probably received the most negative press over the past couple of years because of what the Enron debacle did to the downtown market. However, this market has seen a significant decrease in new supply, which will help it get back to normal more rapidly than the apartment market,” Smith predicted. “If Houston generates between 30,000 to 50,000 new jobs per year during the rest of this decade, constrained levels of construction should allow office, retail, and industrial vacancy rates to return back to more typical levels within two to four years,” he said. “Now, there is a possibility that the region’s economy
will do even better than that, but such a scenario is contingent
on an improved international environment for business and economic
growth that, given current world events, takes a large ‘leap
of faith’ to predict and at this point should not be counted
on. This requirement is necessary for strong growth not only in
non-energy sectors, but in energy as well.” During his presentation, Smith also addressed some of the high profile issues getting substantial attention in the press and in recent political rhetoric, such as the phenomenon of “job outsourcing.” As a part of the discussion he presented data indicating that the degree of “in-sourcing of jobs” was likely as great as the so-called outsourcing phenomenon, and provided a map illustrating the states in the country that have been the greatest beneficiary of job in-sourcing by U.S. subsidiaries of foreign companies. Texas is ranked second in the nation, just behind California. But Smith also reminded his audience that the inflow of workers into the country was significantly greater than either the outflow or inflow of jobs and that a large portion of this inflow of workers is not related to illegal migration but the legal immigration of high-skilled workers to this country utilizing temporary work visas that often end up being more permanent than temporary. Smith pointed out that India, which has received so much attention as the destination of outsourced jobs, is the primary origination of this million worker a year flow of skilled labor. In conclusion, Smith ended the program with his long-run forecasts
for the region and their implications to the public sector and the
area’s real estate markets. “The long-run forecasts
for the region are changed little since they were revised two years
ago,” he said. “Population is still expected to exceed
6 million by 2020, and employment will average close to 3 million
that year. Of that growth, most will occur in the distant suburbs,
though urban renewal within the central city will continue, following
the pattern established during the last half of the ’90s.”
Reminding those in attendance that Houston is aging and will continue
to face the challenges associated with that aging, Smith pointed
out that by the 2025, more than a third of the region’s housing
stock will be over 50 years old – a far cry from the days
of Houston’s youth. About the University of Houston For more information about UH visit the university’s ‘Newsroom’
at www.uh.edu/admin/media/newsroom For more information about UH visit the university’s ‘Newsroom’ at www.uh.edu/admin/media/newsroom. |
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