HOUSTON – (By Michelle Leigh Smith) – With oil prices lingering around $50 per barrel, the Houston economy is poised for a subdued 2017, characterized by an oversupplied office market, an overbuilt multifamily sector and only modest job growth, according to University of Houston economist Dr. Bill Gilmer.
Gilmer shared this cautious outlook with more than 800 Houston business leaders and University of Houston supporters who gathered in the Hyatt Regency Houston Hotel ballroom for the Institute for Regional Forecasting’s annual economic outlook, presented by the C.T. Bauer College of Business. Launched in 1984 by Dr. Barton Smith, the symposium examines both the broader economy and Houston’s real estate market.
“The current state of the Houston real estate market shows apartments are overpriced and the office market is overbuilt, though not to the extent seen in the 1980s,” said UH Dean Latha Ramchand. “Single-family housing represents the primary opportunity.”
Ramchand introduced Gilmer as attendees viewed a series of charts illustrating how Houston’s industries have responded to sustained oil prices below $50 per barrel.
“Houston has experienced almost no job growth over the past two years, but we have not seen a major economic reversal,” Gilmer said. “The U.S. economy continues to expand at a healthy rate. In Houston, we added 15,000 jobs in the last two months after losing 70,000 over the prior two years.”
Drawing on U.S. Department of Labor data, Gilmer noted many recent hires have been in basic industries such as petrochemical refining and manufacturing. Houston’s unemployment rate stood at 5.9 percent in March.
For the year, Gilmer forecasts roughly 38,000 new jobs—far below the annual gains of more than 100,000 seen four to five years ago.
“Part of the slowdown will show up when the current industrial construction boom ends, leaving tens of thousands of construction workers without projects,” he said.
Gilmer warned that the petrochemical expansion is approaching the end of its current cycle as several major projects wrap up. He cited two new ethylene crackers—one by Dow and another by Ineos with ExxonMobil and ChevronPhillips—expected to finish in mid-2017. Polyethylene capacity from ChevronPhillips in Sweeny and Dow in Freeport was slated to complete in the third quarter of 2017, with LyondellBasell’s La Porte expansion following in 2019.
Despite lower-than-expected attendance at this year’s Offshore Technology Conference at NRG Center, Gilmer identified positive factors that should help sustain Houston’s economy.
“The U.S. economy continues to benefit Houston, assuming the worst of the bust is behind us. The domestic sector remains robust, and the probability of a recession is very low—predicted at less than one percent by Chauvet & Piger,” he said.
Formerly of the Federal Reserve Bank, Gilmer said Houston’s longer-term job and housing outlook looks brighter now that the worst energy-related adjustments may be fading. He also warned that builders may soon face a shortage of lots for new construction.
Gilmer observed that prices were holding up south of I-10 West in Memorial and the Energy Corridor as sales recovered, while The Woodlands had cooled and sales and price growth were slowing in Pearland, Sugar Land, Kingwood and Katy.
Those local impressions were echoed by industry professionals in attendance.
“The data in Dr. Gilmer’s presentation showed strength in the Houston economy beyond oil,” said Susie Sirmons, Regional Sales Director for Meyers Research. “There’s a strong correlation between job growth and new single-family housing development. Even Dr. Gilmer’s most conservative forecast should be enough to encourage new home building.”
“The new luxury apartments in the Medical Center have affected demand for single-family rental homes,” said Ann Martin, Vice President of Roger Martin Properties. “These houses still lease, but they must be competitively priced and include quality features.”
Speaking with characteristic optimism and a deep commitment to the University of Houston and Houston business, former UH Board of Regents Chairman Welcome Wilson Sr. recalled an early family story about the university. He described how his father brought him and his brother Jack to UH in 1946, convinced Houston would become the South’s leading business city. “There were about half a million people in Houston then—now the region is 6.5 million,” Wilson said. “My brother and I left Brownsville Junior College to come to the University of Houston.”
“I was 18 and UH was 18,” he added. “Dad said, ‘Boys, I’ve paid your first semester’s tuition and your first month’s rent in this army surplus trailer ($10). If you ever need anything, call me and I’ll tell you how you can get by without it.’”
Gilmer’s view aligned with themes emphasized earlier in the month by Mayor Sylvester Turner in his State of the City address. Turner noted the Houston region fell in the Kauffman Foundation’s rankings for high-tech startup density and ranked 31st nationally in venture capital investment—third in Texas—an underperformance he labeled unacceptable. In response, the mayor formed a task force to diagnose causes and recommend corrective steps.
“Technology innovation and a vibrant startup community are key drivers for our city’s present and future,” Turner said, describing Houston as a Knowledge Capital because of its concentration of ideas and innovation.
Whether called Knowledge Capital, Energy Capital, Space City, Bayou City or H-Town, Houston is unlikely to see a robust economic rebound in 2017. Still, the outlook has a silver lining: the local economy is expected to add jobs rather than shrink.
May 14, 2017 Realty News Report Copyright 2017