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Texas Quarterly Apartment ReportTexas Quarterly Apartment ReportJames P. Gaines, Luis B. Torres, Harold D. Hunt, Clare Losey, Trenton Forbes, and Caleb Smoot2020-03-20T05:00:00Zresearch-article
Residential

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Texas Economic Overview​​

Please note. This report does not account for the impacts of the COVID-19 (coronavirus) outbreak, but reflects the market through fourth quarter 2019 and can be used as a benchmark comparison for 2020. The full impact of the virus on commercial real estate, much less the overall economy, is highly speculative at this point, and it is premature to speculate on the magnitude. Once information is available regarding the impacts of COVID-19 we will revise our forecast for 2020.

More recently, coronavirus has been a negative shock to the economy and financial markets. Lower growth expectations and increased uncertainty could derail continued expansion in 2020. The Texas economy weathered the 2014-15 oil bust on the strength of the U.S. economy and the state's diverse economy. Now the state faces the double-whammy scenario where declines in the oil industry and the U.S. economy threaten the state's economic future. The only thing there is little doubt about is that there will be negative consequences that will affect the market from users, owners, lenders, bond holders, and the general economy. We don't know how pronounced those impacts will be. Stay tuned. Future Center publications will offer detailed analysis.

The Texas economy grew at a solid pace in 2019 in the midst of one of the longest expansionary cycles in state history. Crude oil production, residential construction, housing sales, and commodity exports increased. Although initial unemployment claims rose modestly, the labor market remained strong with record low unemployment, stable job growth, and improved labor force participation. The manufacturing sector, however, struggled amid the slowing global industry and trade-related uncertainty. Although international migration was down, overall favorable economic conditions attracted migrants from other states, boosting population growth. 

Even before the coronavirus, the state's economy faced headwinds from slowing national and global economies, downward pressures on oil prices, and ongoing political and trade-related uncertainties. For additional commentary and statistics, see Outlook for the Texas Economy

The Texas Residential Construction (Coincident) Index (Figure 1), which measures current construction activity, rose 2.2 percent annually in 2019 as industry employment increased. Momentum should continue into 2020. The index reached its highest level since before the Great Recession. Relatively low interest rates, upward-trending housing permits, and housing starts supported the positive outlook. The volume of multifamily construction loans increased in 2019, suggesting higher levels of construction in coming months.


The Austin, DFW, Houston, and San Antonio indices all pointed toward higher activity (Figure 2). Overall market trends for the majority of Texas metros show positive occupancy rate growth combined with positive rent growth. Only Midland/Odessa is registering both negative rent growth and change in occupancy due to the uncertainty in the oil industry. With the supply of single-family starter homes constrained, young adults continue to rent units in the apartment sector. Overall market trends for the majority of Texas metros show positive occupancy rate growth combined with positive rent growth. Only Austin registered negative change in occupancy, while both Houston and Fort-Worth registered zero change in occupancy, and Midland/Odessa registered both negative rent growth and change in occupancy due to the uncertainty in the oil industry.


Both low inflation expectations and modest future growth prospects continue to weigh on nominal interest rates. Particularly, capital flows have flooded the Treasury market seeking positive returns and low risk, pushing the ten-year Treasury bill further down. The fall in the ten-year yield at the end of 2019 caused the spread in apartment capitalization rates to increase, indicating increased risk in multifamily real estate and general profitability (Figure 3).​

Overall apartment cap rates for Austin and San Antonio remain the highest, followed by Houston and DFW (Figure 3). DFW has become the least risky and lowest return market for multifamily real estate based on the spread with the ten-year Treasury bill. The spread with the ten-year Treasury bill increased in 2019.


Overall market trends for the majority of Texas metros show positive occupancy rate growth combined with positive rent growth (Figure 4). Only Austin registered negative change in occupancy, while both Houston and Fort Worth registered zero change in occupancy, and Midland/Odessa registered both negative rent growth and change in occupancy due to the uncertainty in the oil industry. With the supply of single-family starter homes being constrained, young adults continue to rent units in the apartment sector. The volume of multifamily construction loans increased in 2019, suggesting higher levels of construction in the coming months (Figure 5).



​For an analysis of Austin's, DFW's, Houston's, and San Antonio's apartment markets (including tables and figures), download the full report.

Previous reports available: 

2019: 1Q2019, 2Q2019​, 3Q2019

Digital and Print2242https://www.recenter.tamu.edu/articles/research-article/TexasQuarterlyApartmentReport-2242 https://assets.recenter.tamu.edu/Documents/Articles/2242.pdf

 

 

Texas Quarterly Apartment ReportTexas Quarterly Apartment ReportResidential
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Outlook for the Texas EconomyOutlook for the Texas Economyhttps://www.recenter.tamu.edu/articles/technical-report/outlook-for-the-texas-economyLuis Torres, Wesley Miller, Paige Silva, and Griffin Carter
Residential Rental Protection and COVID-19Residential Rental Protection and COVID-19https://www.recenter.tamu.edu/articles/tierra-grande/ResidentialRentalProtectionCOVID-19-2271Wesley Miller
Get SmartGet Smarthttps://www.recenter.tamu.edu/articles/tierra-grande/GetSmart-2272Kerri Lewis
Unforeseen CircumstancesUnforeseen Circumstanceshttps://www.recenter.tamu.edu/articles/tierra-grande/UnforeseenCircumstances-2274Rusty Adams
COVID-19 Impact Projections on Texas EconomyCOVID-19 Impact Projections on Texas Economyhttps://www.recenter.tamu.edu/articles/special-report/COVID-19-Impact-ProjectionsLuis B. Torres
Texas Housing InsightTexas Housing Insighthttps://www.recenter.tamu.edu/articles/technical-report/Texas-Housing-InsightJames P. Gaines, Luis B. Torres, Wesley Miller, Paige Silva, and Griffin Carter