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Texas Border EconomyTexas Border EconomyJames P. Gaines, Luis Torres, Wesley Miller, and Bailey Cuadra2017-12-12T06:00:00Zresearch-article
Texas Economy

​Octo​ber 2017 Border Summary

Tightening labor markets and favorable exchange rates supported economic growth along the Texas-Mexico border. The unemployment rate hit cycle-lows, driving wages above the Texas growth rate. Housing sales recovered after a two-month decline, led by gains in El Paso. Single-family building permits trended upward in response to increased demand for new homes. Border housing markets benefited from economic growth, but several challenges lie ahead. NAFTA renegotiations, a slowing Mexican economy, and immigration reform uncertainty present the largest headwinds to the border economies.

Econ​​omy

Economic activity held steady along the border as falling unemployment rates supported positive growth in the Business Cycle Indices. Laredo maintained the strongest growth at 10.8 percent annualized quarter over quarter (QOQ), a stark reversal from its first quarter contraction. The El Paso index dipped below 3 percent for the first time since May but remained stable. In Brownsville, the index ticked up to 2.8 percent, continuing its steady six-month expansion. Recent employment declines pulled the McAllen index down to 7.3 percent after surpassing 15.2 percent in July.

Despite positive growth in the business cycle indices, total border construction values declined 8.2 percent, an improvement from double-digit contractions in the previous two months. Declines in hotel-motel construction in El Paso and s​​chool building construction in the remaining border metros accounted for most of this month's slump. Construction values improved in the residential sector as apartment investment increased in El Paso, and single-family housing picked up in Laredo.

Net border employment increased by just 100 jobs1, decelerating to an annualized growth rate of 1.0 percent. A four-month decline in mining-logging-construction employment pulled McAllen's annualized growth into negative territory. In Brownsville and Laredo, declines in education and health services slowed annualized growth rates to 0.6 and 0.5 percent, respectively. Solid gains in professional and business services, as well as the government sector, elevated El Paso employment growth ahead of the other border metros at 2.4 percent annualized. The labor market also stagnated in the Mexican border metros as the national economy slowed. However, Mexican manufacturing and maquiladora employment added more than 10,000 jobs since May, driven primarily by growth in Chihuahua, Mexico.

Unemployment rates2 along the border remained on a seven-month downward trend. Unemployment hit all-time lows in El Paso and Laredo, sinking to 4.0 and 3.6 percent, respectively. In Brownsville and McAllen, the unemployment rate drastically improved to 6.1 and 6.7 percent, respectively, after surpassing 8 percent earlier this year.

Falling unemployment supported strong wage growth in the border economies. Real private hourly earnings increased 4.4 percent YOY in McAllen, well above the state growth at 1.2 percent. After stagnating in the third quarter, El Paso wages picked up steam and improved 1.8 percent YOY. Hourly earnings increased for the fifth consecutive month in Brownsville, reversing a 19-month contraction. Laredo remained the exception, where wages slid for the 17th straight month despite record low unemployment. Decreased manufacturing activity and retail trade contributed to the wage decline.

The peso per dollar exchange rate2 increased to 18.82 after hovering below 18 throughout the third quarter. However, after accounting for price differentials between the U.S. and Mexico, the real exchange rate fel​l 2.6 percent YTD. Declines in the Texas trade-weighted value of the dollar strengthened Mexican purchasing power, generating a 1.4 percent increase in the total value of border trade activity. Despite recent violence in Reynosa, Mexico, both import and export values expanded in McAllen. El Paso posted the largest monthly export growth at 2 percent but remained down 5.9 percent YTD. Brownsville and Laredo led import value growth, both surpassing 1.4 percent.

Hou​​​sing

Border housing sales increased 2.4 percent after a two-month contraction, rising in every metro except McAllen. El Paso and Laredo generated most of the increase as sales jumped 4.8 and 7.5 percent, respectively. Brownsville sales were flat but remained down 14.9 percent for homes priced in the bottom cohort (less than $100,000). In McAllen, housing sales fell for the third consecutive month, retracting nearly all of the gains made earlier this year.

On the supply side, single-family residential housing construction permits increased 4 percent along the border, maintaining an upward trend. El Paso and McAllen led the expansion with 5.8 and 4.6 percent increases, respectively. Brownsville permits rose moderately monthly but maintained double-digit growth YTD. Permits stabilized in Laredo for the first time since April as builders adjusted to increased demand.

Despite increased building permits, border construction values fell 1.1 percent for private single-family homes. McAllen posted the largest decline at 7.8 percent, followed by El Paso at 2.8 percent. Brownsville and Laredo, which have smaller housing markets, recorded higher single-family construction values after third quarter contractions.

The months of inventory (MOI) of listed homes for sale varied along the border but remained constricted in the bottom price cohort. The supply of listings for homes less than $100,000 fell to 4.2 and 3.4 months in Brownsville and El Paso, respectively, while dropping to 3.2 months in Laredo. In McAllen, homes under $100,000, as well as those priced between $100,000-$200,000, settled at 6.4 months, well above the other metros.

New home inventories expanded in all the border economies except McAllen. The new home months of inventory in El Paso rose to a series high 7.6 months, while balancing at 7.5 months in Brownsville. The Laredo MOI exceeded 4.1 months, up 29.5 percent from May but could stall amid depressed permits and construction values. Despite falling 2.3 percent, the McAllen MOI remained elevated at 11.5 months.

Resale supply conditions were mixed, but inventories remained generally lower than for new homes. Surpluses persisted in McAllen where the existing home months of inventory surpassed 8.7 months. The Laredo MOI hovered around 5.4 months as strong sales offset increased active listings. Both Brownsville and El Paso hit record low MOI at 7.6 and 4.7 months, respectively, as the number of annual active listings declined.

In general, housing demand strengthened as the average number of days on market (DOM) declined along the border markets. Laredo homes sold the fastest, averaging just over two months on the market, while El Paso homes averaged 94 days. Increased demand for homes in the largest price cohort ($300,000 and more) held the McAllen DOM around 92 days. Brownsville demand strengthened in the bottom price cohort for the third straight month, pulling the total DOM (116 days) to a 21-month low.

In contrast with the statewide trend, new home demand outpaced the resale market.  The new home DOM dropped to 66 and 53 days, respectively, in Brownsville and Laredo, while the McAllen metric settled at 81 days. In comparison, the new home DOM throughout Texas hovered around 90 days. The DOM remained higher in El Paso at 106 days but trended downward since May. On the other hand, border resale demand was weak as the existing home DOM lagged well below the state level.

The median home price for existing homes softened within the border economies. The median decreased by more than $1,000 in El Paso ($131,961) and Laredo ($166,598) after solid gains in August and September. Existing home prices continued a year-long decline in Brownsville, falling 5.5 percent YOY. McAllen was again the anomaly, as the resale median trended upward despite housing surpluses.

New home prices also trended upward in McAllen as the median hovered above $170,000, up 12.7 percent YTD. El Paso maintained the highest new home median at $173,263, slightly below year ago levels. Rising demand lifted the Brownsville median 5.5 percent to more than $166,600. In Laredo, strong demand failed to support new home prices as they fell under $163,000, a $52,700 decline from its cycle-high in December 2016. In general, housing prices in the border metros are among the lowest in Texas as well as the United States. However, housing affordability persists amid below-average income levels.

____________________​

1 Monthly numbers are reported instead of a three-month moving average for consistency.

2 Official numbers are reported instead of a three-month moving average for consistency.



 




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Texas Border EconomyTexas Border EconomyTexas Economy
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