Where Does the Houston Economy Go Now? Oil Prices Still the Key

Robert W. Gilmer, Ph.D.

C.T. Bauer College of Business April 2017

The Worst Is Over, But Where Are We Now?

• Houston has slowed to no-growth for two years, but has seen no major economic reversal

• Where are we now? • We have probably put behind us the worst downturn

ever for American oil • The U.S. economy continues to grow at a healthy rate • The East Side petrochemical boom is over • All forward momentum from the Fracking Boom is now

lost, can only be rebuilt slowly

• Where are we going now? We begin from a dead stop. After that, just tell me the price of oil, please.

For Houston, Its Problems Have Been All About Oil Prices

0

20

40

60

80

100

120

WTI $/bbl. Monthly

25

30

35

40

45

50

55

60

WTI $/bbl. Daily in 2016-17

Houston Job Growth Rides Oil Boom and Bust

December to December Changes

Jobs Change*

2012 118,600 4.3%

2013 89,800 3.2%

2014 117,800 4.0%

2015 20,700 0.7%

2016 … through 12,500 0.5%

Texas Workforce Commission

Sector

Before Revision Dec to Dec

After Revision Dec to Dec

Jobs Jobs % Growth

2012 118,600 118,800 4.4%

2013 89,800 90,400 3.2%

2014 117,800 118,200 4.1%

2015 15,200 200 0.0%

2016 14,800 18,700 0.6%

Current Slowdown Marked The End Of A Decade Of Job Growth

(annual percent change)

-6

-4

-2

0

2

4

6

19

96

19

97

19

98

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99

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00

20

01

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17

4.0

0.0

0.6

1.9

Note: December to December changes, except 2017 which is year-to-date, annualized, and seasonally adjusted. TWC estimates.

Slow But Still Positive: Houston Job Growth Revised Down to 18,500 Jobs In 2015-16

(3-month percent change at annual rates, s.a.)

-8

-6

-4

-2

0

2

4

6

U.S.

Houston

Texas Workforce Commission and Bureau of Labor Statistics

Oil-Related Job Losses Grow to 77,200 After Revisions

(Net Change in Jobs, Dec. to Dec.)

Sector Dec ‘14 – Dec ’16

New Jobs Percent

Total Payroll 17,300 0.6%

Mining -29,400 -25.7%

Construction 3,200 1.5%

Manufacturing -40,300 -15.5%

Machinery -18,700 -34.2%

Fab Metal -20,500 -28.3%

Wholesale Trade -5,700 -3.4%

Prof/Buss Services -3,000 -0.6%

760.0

780.0

800.0

820.0

840.0

860.0

880.0

900.0

Dec

-12

Ap

r-1

3

Au

g-13

Dec

-13

Ap

r-1

4

Au

g-14

Dec

-14

Ap

r-1

5

Au

g-15

Dec

-15

Ap

r-1

6

Au

g-16

Dec

-16

Ap

r-1

7

Energy Sectors Begin to Turn in Early 2017 (000, s.a.)

*Revised Texas Workforce Commission estimates. Oil –Related Jobs = Oil Producers and Services, Machinery and Fabricated Metal, Wholesale Trade, and Professional and Business Services.

Growth Of Selected Services Revised Down But Remains Strong

Number of Jobs in Key Services Revised Down, seas. adj.

1360

1380

1400

1420

1440

1460

1480

Tho

usa

nd

s

New Jobs Added Dec 2014 to Dec 2016 (and recent revisions)

• 22,971 health care (-3,425)

• 20,836 food service (-7,850)

• 16,805 local government (+3,342)

• 10,756 retail trade (-8,679)

• 5,954 finance (+3,440)

• 4,207 arts/entertainment (-14)

• 4,148 private education (+394)

• 1,202 accommodation (-492)

• 86,026 all 8 sectors (-14,098)

Texas Workforce Commission

Downward revision of 14,098 jobs

Where Did This Service Sector Growth Come From?

• Where did this services growth come from? • Strong national markets: United Airlines, Sysco, AIG, HP • Petrochemical construction boom in East Houston • Past momentum, built on Houston’s 680,000 new jobs from

2004-2014 • In-migrations continues strongly for several quarters after job

growth slows • Most direct damage is confined to oil producers, oil services,

and manufacturing … so far

• BUT … we are now 26 months into this slowdown. The chemical boom is over; momentum has waned; population growth is evaporating. Only the U.S. economy left to help out … and the renewed drilling activity.

Plenty Of Other Signs Of A Big Slowdown Or Mild Reversal

Houston unemployment rate moves above U.S. to 5.4%

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Houston

Quarterly Sales and Use Tax Collections Down 11.4 and 8.5 Percent for City & METRO MTA

100

110

120

130

140

150

160

170

180

190

Mill

ion

s

City of Houston

Bureau of Labor Statistics

U.S.

METRO MTA

Texas Comptroller, seasonally adjusted; Through 2016Q4

Houston Purchasing Managers’ Index Makes Strong Move Up in 2017

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

Jan

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-17

Index, seas. adj.

US Index Houston Index 50 Neutral

U.S.

Houston

Was It Recession? Ask The Dallas Fed Business Cycle Index

Tracks local business cycle with four variables

180.0

200.0

220.0

240.0

260.0

280.0

300.0

320.0

Dec

-00

Mar

-02

Jun

-03

Sep

-04

Dec

-05

Mar

-07

Jun

-08

Sep

-09

Dec

-10

Mar

-12

Jun

-13

Sep

-14

Dec

-15

Mar

-17

2000 to 2017

We were on brink of recession in 2016, if not in It

265.0

270.0

275.0

280.0

285.0

290.0

295.0

300.0

305.0

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-14

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

2013 - 2017

Houston in Five Drilling Downturns: So Far, This One Is a Possible Mild Recession

% Decline Rig Count

% Loss Local Jobs

Dallas Fed BCI

Economic Event Quarters Decline

% Decline

U.S Economic Performance

1980's -82.4 -13.3 20 -17.6 - +

Asian Financial Crisis -46.0 None No Recession + +

2001 Tech/Enron -35.4 -1.3 9 -2.9 -

Great Recession -50.9 -4.1 5 -7.5 - -

Fracking Bust … so far -75.4 None 6 -2.4 +

Oil Markets and Oil Price

Global Oil Demand Has Held Steady This Has Been a Supply Problem

(million bbl./d)

60

65

70

75

80

85

90

95

100

105

Jan

-97

Sep

-97

May

-98

Jan

-99

Sep

-99

May

-00

Jan

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-01

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-02

Jan

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Sep

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May

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Sep

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-10

Jan

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-11

May

-12

Jan

-13

Sep

-13

May

-14

Jan

-15

Sep

-15

May

-16

Jan

-17

Sep

-17

Great Recession

Fracking Bust

Asian Financial Crisis/ Tech Bust

Commodity Boom

0

10

20

30

40

50

60

70

80

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Drilling Recovery Means Oil Near $65/bbl.

Long-Run Marginal Cost of Global Oil Production

1

2

3

4

5 6 7 8

11

9

10

$/bbl.

Production (million bbl./d) This is chart is stylized and illustrative

Price Of WTI Oil As Implied by Valuation Of The Stock of 40

Producers

62

60

62

56 56

62

64

66

64

59

$50

$52

$54

$56

$58

$60

$62

$64

$66

$68

Jan '15 Apr '15 Jul '15 Oct '15 Jan '16 Apr '16 Jul '16 Oct '16 Jan '17 Mar '17

$/bbl.

Goldman Sachs Research, at first week of each quarter

The Commodity Super-Cycle Is Over (price index: Jan 2001 = 100)

0

100

200

300

400

500

600

Food

Ag Raw Materials

Metals

Crude Oil

International Monetary Fund

Growth In The Demand For Oil Comes From Emerging Markets

(million b/d)

8.0

18.8

-5

0

5

10

15

20

1996-2003 2003-2016

Global

OECD

Non-OECD

International Energy Agency

Global Economy Still Trapped in Prolonged Period of Sub-Par Growth

(percent change in GDP)

-6

-4

-2

0

2

4

6

8

10

12

14

16

Brazil China India World

Brazil

China

India

World 2.2

1.5

3.6

2.7

1.7

4.4

2.9

1.8

4.7

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

World Developed Emerging

Slow Global Growth Led By Developed World

2016 2017 2018

Percent

IMF World Economic Outlook, April 2017

On Supply Side? U.S. Shale Reversed 40 Years Of Declining Oil Production

(million barrels/day)

4

5

6

7

8

9

10

11

DOE/EIA, Seasonally adjusted by IRF

Peak: July 2015 Still Down 677,000 bbl./d

As Oil Prices Rose This Spring, Optimism Returned To The Oil Market

• The big three oil service companies all declared a bottom was in place for drilling in their 2016 earnings reports

• Oil service and machinery stocks quickly rose 30% in February and March as the OPEC agreement fell into place, then fell back in March and April with lower oil prices

• The rig count has more than doubled from the March 2016 low of 404

• But did producers get ahead of themselves? Again trying to drive equity gains instead of profit over the oil-price cycle?

1200

1400

1600

1800

2000

2200

2400

2600

2800

S&P Oil Service And Machinery Stock Price Index

Oil prices improve

OPEC accord signed ->

In March, All OPEC’s Efforts to Drive Higher Oil Prices Seemed to Be Lost

$44

$46

$48

$50

$52

$54

$56

$58

$60

WTI Futures $/bbl.

$60/bbl.

March 17

Before OPEC Pact

After OPEC Pact

By April, Modest Optimism Was Back: But Oil Price Never Close to $60

44

46

48

50

52

54

56

58

60

WTI Futures $/bbl.

$60/bbl.

March 17

Recent

After OPEC Pact

Drilling Has Definitively Turned Up from Historic Lows

300

500

700

900

1100

1300

1500

1700

1900

2100

1 8

15

22

29

36

43

50

57

64

71

78

86

93

10

0

10

7

11

4

12

1

12

8

Weekly Count of Working Rigs

Weeks after peak in drilling activity

488 Rig Count was previous all-time low

2008-2009

2014-2016

Thinking About Recovery In the Oil Patch

Recovery In Rig Count After Oil Prices Definitively Move Up

(working rigs by quarter after oil prices begin to rise, s.a.)

0

500

1,000

1,500

2,000

2,500

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47

Quarters after recovery

2008-09

1997-98

2001-03

1982-87

Baker Hughes, calculations of IRF

Building Scenarios For Recovery In Oil

• When will oil prices hit bottom?

• When will the rig count turn up?

• When do energy jobs begin to come back?

• How high will the rig count go in this recovery?

• When do energy jobs begin to come back?

• How long before the rig count reaches these highs?

Three Scenarios for a Drilling Recovery

• Rig Count? • High Scenario: Strong recovery like 2008-09

continues to unfold • Medium Scenario: Slows in 2017Q2/Q3 but

moderate recovery continues • Low Scenario falls back in 2017 Q2, remains

low and slow trough 2018

• Rig Count Max After Recovery? • High Scenario: 1650 • Medium Scenario: 1500 • Low Scenario: 1300

• Return of Drilling Jobs in Houston • High Scenario: 2017Q1 • Medium Scenario: 2017Q3 • Low Scenario: 2018Q4

High scenario requires a quick rebound in oil prices to $55, and continued move to $60-$65 range; moderate requires a return to $55 or better; low scenario triggered by continued oil price near $45, and staying at that level through 2017 and into 2018.

Rig Count Scenarios and the Return Of Oil Employment In Houston

0

500

1000

1500

2000

2500

Jan

-12

Oct

-12

Jul-

13

Ap

r-1

4

Jan

-15

Oct

-15

Jul-

16

Ap

r-1

7

Jan

-18

Oct

-18

Jul-

19

Ap

r-2

0

Jan

-21

Oct

-21

Rig Count

High Medium Low

195

215

235

255

275

295

315

Jan

-07

Mar

-08

May

-09

Jul-

10

Sep

-11

No

v-1

2

Jan

-14

Mar

-15

May

-16

Jul-

17

Sep

-18

No

v-1

9

Jan

-21

Oil-Related Jobs in Houston (000)

High Medium Low

U.S. Economy Continues to Work for Houston

U.S. Economy Continues To Grow Strongly And Create Jobs

• Assume in all scenarios that the U.S. economy has put the Great Recession behind it

• Consumer has deleveraged; state and local governments are collecting revenues at a healthy rate and spending; the housing market has returned to close to normal

• U.S. job growth is at 1.7 percent or about 200,000 jobs per month throughout the forecast horizon

• We see the export sector, especially manufacturing struggling with the strong dollar, but domestic growth is robust

Last Year a Split Emerged Between Growth In Production And Jobs

GDP Growth Has Slowed Sharply in Recent Quarters

-2

-1

0

1

2

3

4

5

6

1/1

/20

12

6/1

/20

12

11

/1/2

01

2

4/1

/20

13

9/1

/20

13

2/1

/20

14

7/1

/20

14

12

/1/2

01

4

5/1

/20

15

10

/1/2

01

5

3/1

/20

16

8/1

/20

16

% Change at Annual Rates

While U.S. Job Growth Remains Quite Strong

300.0

400.0

500.0

600.0

700.0

800.0

900.0

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

16

Q1

20

16

Q2

20

16

Q3

20

16

Q4

000 New Jobs Per Quarter

Results Are Consistent With Robust Domestic Growth And Weak Exports

Productivity Growth Is Slow

-4

-2

0

2

4

6

Jan

-00

Ap

r-0

1

Jul-

02

Oct

-03

Jan

-05

Ap

r-0

6

Jul-

07

Oct

-08

Jan

-10

Ap

r-1

1

Jul-

12

Oct

-13

Jan

-15

Ap

r-1

6

% Change in Productivity 12 Quarter Average

Weak Export Sector

-10

-5

0

5

10

15

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

% Change Annual Rates

Smoothed U.S. Recession Probabilities

(percent chance of recession)

0

10

20

30

40

50

60

70

80

90

100

Subprime Blows Up

US Financial Crisis

Currently less than 1%

Percent

2001 Recession

Source: Chauvet and Piger smoothed recession probabilities, FRED, St. Louis Fed

Downstream Boom Offsets Upstream Bust

Low Oil Prices Keep Gulf Coast Refining Margins Strong

($/bbl)

0

5

10

15

20

25

30

margin

Six-mo avg

Pace refining margins, Oil and Gas Journal

Natural Gas Shares Oil’s Hockey Stick Surge In Production

1.25

1.45

1.65

1.85

2.05

2.25

2.45

Marketed production, Tcf/mo, seasonal adj

DOE/EIA

Natural Gas Prices Collapsed In Late 2011

($/mcf)

0

2

4

6

8

10

12

14

DOE/EIA

$164 Billion U.S. Construction Boom Is Based On Cheap Energy

• This $164 billion total includes many industries and all of the U.S.

• New ethylene crackers, more ethylene-related expansion in PE, PVC and other derivative plants

• LNG export terminals to sell surplus natural gas into global markets

• Refiners have joined in with additional expansions

Note: The $164 billion figure is based on all U.S. shale-related expansion, estimated by the American Chemistry Council in April, 2016

Natural Gas Energy Content Now Equivalent $15 per Barrel

For Oil

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

Jan-01 Feb-03 Mar-05 Apr-07 May-09 Jun-11 Jul-13 Aug-15

oil $/b

nat gas $/b

DOE/EIA and calculations of the author

Ethylene Margins (cents per pound)

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Large Projects Headline Over $50 Billion In East Houston Construction

Company Location Project Completion Value ($ mil)

Exxon Baytown Ethylene 2017 $5,000

Chevron Freeport Ethylene 2017 $4,000

Dow Baytown Ethylene 2017 $3,500

BASF Freeport Ethylene 2017 $3,000

Freeport LNG Freeport LNG Export 2019 $3,000

Freeport LNG Freeport LNG Export 2020 $3,000

Bayer Baytown PUR Facility 2021 $2,000

CPV Freeport Gas to Polypropylene 2017 $1,500

Freeport LNG Freeport Methane to Propylene 2018 $1,400

Projects Begin To Wind Down Rapidly After 2017

(Value of Projects Completed, $ million)

$8,319

$22,706

$4,980 $4,000

$3,000 $2,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

2016 2017 2018 2019 2020 2021

Put It All Together

• Three oil scenarios: high, medium, or low. High sees solid recovery now underway in drilling; medium sees strength delayed until early 2017; low until late 2017

• Continued U.S. expansion at moderate rates

• The end of most of the petrochemical construction on the East Side. Some new construction, but nothing to replace the boom-time construction that finishes

• Data revisions that point to possible mild local recession in in early 2016.

Preliminary: Forecast Job Growth In Houston: 2014-2021

(000 New Jobs, Q4/Q4)

By Scenario

Year High Medium Low 25/60/15

2014 112.7 112.7 112.7 112.7

2015 10.3 10.3 10.3 10.3

2016 10.2 10.2 10.2 10.2

2017 60 40 10 38

2018 70 45 15 43

2019 80 60 35 58

2020 85 70 50 72

2021 90 75 65 77

Calculations of IRF, based on drilling scenarios above. Figures are Q4/Q4. The 2016 calculations include benchmark revisions of March 2017.

Net Migration Follows Job Growth: Turnaround in Population Comes Slowly!

• When population grows, net migration gives the biggest economic stimulus

• As job growth rises, net migration begins to rise a year later

• In recovery, net migration falls a year behind

• Data at right matches 25/60/15 weighted employment forecast, sees a 2018/19 trough with about 30,000 net migrants 0

20

40

60

80

100

120

2014 2015 2016 2017 2018 2019 2020 2021

Annual Increase: New Jobs vs. Net Migration

(Index: 2014 = 100)

New Jobs

Net Migration

Existing Home Sales: Beware the Averages

Existing Home Sales Flat In Houston Since 2012

(sales, s.a.)

3500

4500

5500

6500

7500

8500

9500 • Flat since 2012? First, due to lack of existing and new home supply, now due to shift to downscale market

• Median home prices rose rapidly after 2011, at 9.4 percent annually from 2012-2014

• 2016 saw continued high level of sales, some relief on inventories, prices rising more slowly

Source: Texas A&M Real Estate Center

Strong Growth And Lot Shortages Distorted Single-

Family Housing Market

2

3

4

5

6

7

8

9

Jan

-08

No

v-0

8

Sep

-09

Jul-

10

May

-11

Mar

-12

Jan

-13

No

v-1

3

Sep

-14

Jul-

15

May

-16

Months Supply

140

160

180

200

220

240

Jan

-08

No

v-…

Sep

-09

Jul-

10

May

-…

Mar

-…

Jan

-13

No

v-…

Sep

-14

Jul-

15

May

-…

Tho

usa

nd

s

Median Price

Source: Texas A&M Real Estate Center, seasonal adjustment by IRF

Ship Channel Cities Baytown, Channelview, Pasadena

80

90

100

110

120

130

140

150

160

150

170

190

210

230

250

270

290

Tho

usa

nd

s

Sales and Home Prices Rising

Sales Price

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

Inventory only 2.5 months

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

South Houston South Belt, Clear Lake, League City

100

120

140

160

180

200

220

240

250

300

350

400

450

500

Tho

usa

nd

s

Sales flat, prices rising

Sales Price

1.4

1.6

1.8

2

2.2

2.4

2.6

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Not much left to sell with two months inventory

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Close-In Rice Military, Heights, Galleria

80

130

180

230

280

330

380

430

150

170

190

210

230

250

270

290

Tho

usa

nd

s

Sales and Prices Sag in 2015-16

Sales Price

3

3.5

4

4.5

5

5.5

6

6.5

7

Inventory falling again as oil prices rise?

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

South Of I-10 West Memorial and Energy Corridor

0

100

200

300

400

500

80

100

120

140

160

180

Tho

usa

nd

s

Prices hold up, sales recover on better oil price?

Sales Price

1.5

2.5

3.5

4.5

5.5

Inventory falls as sales pick up

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

The Woodlands Cools Off

250

300

350

400

150

170

190

210

230

250

270

Tho

usa

nd

s

Sales down, Price trying to recover

Sales Price

2.53

3.54

4.55

5.5

Inventories stabilizing near 5.0 months

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Other Distant Suburbs Pearland, Sugar Land, Kingwood, Katy

200

220

240

260

280

300

300

500

700

900

1100

1300

1500

Tho

usa

nd

s

Sales flat & price increases slow

Sales Price

1.5

2

2.5

3

3.5

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Inventories remain very low, Not much to sell

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Top-end Buyers Lost To Oil Bust, Bottom Of The Market Wants Back In • High-end market for executives and

professionals is gone for the next couple of years

• There are 2.3 million households in Houston. Every time affordability ticks up one percent, it locks 23,000 families out of the market.

• Affordability down 4-5 percent means over 100,000 families were pushed out since 2013

• They have household incomes of $65-$70,000 and can qualify for $250,000 product. Can we deliver near this price point?

40

50

60

70

80

90

Affordability Index: Percentage of Houston households that

can afford median priced home

Wells Fargo Housing Opportunity Index

Close-In and West See Single-Family Sales Sag, Inventories Rise, Prices Flat

Monthly Sales Median Price(000) Inventory

2014 Peak Feb 2017 2014 Peak Feb 2017 2014 Peak Feb 2017

Metropolitan Area 7298 7112 200.9 228.4 2.7 3.9

Close-in* 272 216 402.1 382.4 3.8 5.0

Rice Mil/WashAve. 67 45 453.3 423.1 3.2 5.3

Heights 147 120 445.2 430.0 4.3 4.5

Galleria 66 51 312.1 294.1 3.0 5.8

South of I-10* 148 132 384.8 405.9 1.8 4.4

Energy Corridor 80 63 299.4 328.2 1.6 4.3

Memorial West 75 69 471.3 483.7 2.0 4.4

Spring Branch 103 111 320.8 371.8 2.8 5.4

Woodlands 229 167 355.8 326.2 3.1 4.8

Alief 87 83 123.7 147.9 1.8 2.9

(*) denotes the sum of the sub-categories; all data seasonally adjusted and may not add to totals; sales and price are 3-month moving averages

Rest of Metro Single Family: Little Left to Sell, Prices Still Rise

(*) denotes the sum of the sub-categories; all data seasonally adjusted and may not add to totals; sales and price are 3-month moving averages

Monthly Sales Median Price Inventory

2014 Peak Feb 2017 2014 Peak Feb 2017 2014 Peak Feb 2017

Metropolitan Area 7298 7112 200.9 228.4 2.7 3.9

Ship Channel* 233 264 124.3 147.4 2.7 2.5

Baytown 85 86 139.5 150.8 2.6 2.3

Pasadena 77 78 118.4 148.6 2.3 1.7

North Channel 78 99 116.5 142.9 3.1 2.9

South Houston* 458 393 192.2 231.7 2.0 2.3

Friendswood 74 62 219.1 246.3 1.6 2.2

Clear Lake 131 125 193.5 229.1 2.0 2.1

League City 190 171 216.6 264.4 2.2 2.4

South Belt 75 59 142.8 178.5 1.3 2.0

Suburbs* 1,311 1,163 253.4 285.7 2.2 2.9

Kingwood 124 95 230.0 240.6 1.5 2.9

Katy 510 425 261.5 264.0 2.5 3.3

Cypress 300 296 245.8 266.9 2.2 2.6

Pearland 214 195 231.8 265.1 1.5 1.8

Sugarland 178 153 390.3 392.0 2.1 3.9

New Home Sales Also Shift Down to Smaller Lots and Houses

Single-Family Permits Softer in 2016 But Still Totaled 35,000 (monthly permits at annual rates, s.a.)

0

1

2

3

4

5

6

Tho

usa

nd

s

Texas A&M Real Estate Center

Rising Land Prices Drove Cost Of New Homes

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Land Drives Cost of Houston’s New Home Construction

Since 2012 (Index: 2000Q1 = 1.00)

Home Price Land Price

Structure Cost

$0

$50

$100

$150

$200

$250

Tho

usa

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s

Spike in Land Prices Added $40,000 To Typical New

Home After 2012

Structure Land

Source: Lincoln Institute of Land Policy

Market Shifts To Moderate Priced Homes On Smaller Lots

4421

10313

6197

3083

1207 1000 260 468

0

2000

4000

6000

8000

10000

12000

2016 closings at annual rate by Price range $000

26

17 16

21 19

23

30

40

0

5

10

15

20

25

30

35

40

45

<45 45-50 50-54 55-59 60-64 65-69 70-79 >80

Current lot supply in months & by lot size

MetroStudy

Frontage in feet

Where Does the Houston Economy Go Now? Oil Prices Still the Key

Robert W. Gilmer, Ph.D.

C.T. Bauer College of Business April 2017