Sunny outlook
An economist says that as downturns go, this one wasn’t as bad as others locally.
Ted Jones, chief economist at Stewart Title, has seen Houston’s ups and downs in his 20 years at the global real estate firm. Before joining Stewart, Jones spent 10 years at the chief economist at the Real Estate Center at Texas A&M, where he earned graduate and Ph.D. degrees. Jones, who predicts two more interest rate hikes this year by the Federal Reserve, maintains a sunny outlook for Houston. Edited excerpts from his visit to the Chronicle follow.
Q: How does the latest downturn compare with the past?
A: This is the best little downturn Houston’s ever had. The key on this one is Houston didn’t lose jobs. Go back to 2008-2009, we lost over 4.5 percent of all jobs, over 130,000 total jobs. We did convert a lot of higher income oil and gas jobs to lower-income jobs. We’re up now back up over 1 percent, and the U.S. job growth rate is 1.52 percent overall. Houston’s leisure and hospitality job growth rate is 3.82 percent; the U.S. is 1.66 percent. What this tells me is people living in Houston are feeling pretty doggone good about themselves right now.
Q: What’s your forecast for Houston job growth this year?
A: I think we’re going to punch up a little over 50,000. We’re currently on pace for 32,600. We kind of flatlined for almost three years.
Q: You’re a little more optimistic than some others. Why?
A: We ended up building a huge amount of industrial petrochemical plants. Eagle Ford Shale natural gas is high in ethane, and you make plastic out of ethane. So we have seen either plastic plant expansion, or new construction, or both.
Q: Will that taper off?
A: In southeast Houston, we’re seeing a lot of that construction come to fruition. That’s one of the concerns as the year progresses: Will we have enough alternative job growth to offset some of the construction jobs that will go away because they’ve finished
up projects? Q: How is the housing market doing? A: In the last 12 months, we sold more homes than any time in history. Q: Why are we hitting record home sales and prices now? A: Because we still have 1 percent job growth. Interest rates are incredibly affordable. If you’re talking The Woodlands, Katy, Sugar Land, Pearland, you get an awesome bang for the buck for the house compared with any other place in the country.
Q: Is there a weak spot?
A: Mid-rise and high-rise condos, $750,000 and up. We’ve have had so many Class A apartments come on the market, people are saying: “I may not have to buy that product. I can rent it.”
Q: How will higher interest rates impact homebuyers?
A: We really have two types of homebuyers. One homebuyer buys a monthly payment. They’re going to buy as much house as they can with that monthly payment. As interest rates rise, they buy a smaller home or they buy a home in a less desirable location. The other homebuyer says: “I’m going to buy that house, that location. It makes no difference to me.”
Q: What’s the strongest sector in commercial real estate?
A: Retail. It is the sweet spot in real estate today. You have more people working today than any time in history. From 2005 to 2015, Houston was the third highest in the country for top millennial population growth. When they move into an apartment, what do they have to buy? They’ve got to buy everything. CBRE did a study. Millennials buy 70 percent of their stuff in stores. The reason they buy in stores is they want it now. Q: When do you think the office market will improve?
A: We’ re years off on that. We will see people move from current space to space that’ s more affordable and better.
Q: What are you seeing in the oil patch?
A: We’re starting to see oil companies come back in and drill because the cost of production has come down so much. We have changed our technology so much. What we’ve learned in this downturn is we cannot control the price of oil, but if we can improve and reduce the cost of drilling it, we can produce at a profit. In November 2014, the last peak, we had over 2,900 rigs in operation. Today we have 900. We’re producing almost as much oil with less than half the manpower. Q: How does the rest of the country perceive Houston? A: They have a misperception of us that we’re just an oil and gas town. We’re a lot more than that. Look at the number of Fortune 500 companies that are headquartered here. We’re not losing any Fortune 500 companies. Go to a place like Minneapolis. They’re losing them, and we’re gaining them in Texas.