|Texas Quarterly Apartment Report||Texas Quarterly Apartment Report||Harold D. Hunt, Adam Perdue, Bryan Gilliland, Connor Harwell, and Rajendra Patidar||2022-06-10T05:00:00Z||research-article||Residential|
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Texas Economic Overview
Economic activity within Texas improved during the fourth quarter. Increased hiring in December resulted in solid fourth-quarter payroll expansion, although joblessness in the Lone Star State was still higher than the national average. Moreover, headline wage numbers accelerated in real terms despite rising inflation. Oil industry activity accelerated as oil prices increased and the global economic recovery continued. Containment of the pandemic is vital as additional waves of infection, mainly from the Omicron variant, can weigh on consumer behavior and slow the return to pre-pandemic conditions.
Increasing COVID-19 vaccination rates have contributed to the reopening of the economy. Based on the most current data from the Texas Department of State Health Services, 64.9 percent of the state's population five years and older is fully vaccinated1. For additional commentary and statistics, see the Texas Real Estate Research Center's Outlook for the Texas Economy.
The Center estimated 2022 and 2023 overall and Class A apartment vacancy rates and effective rent percent changes for the major MSAs (Tables 1 and 2).
Overall apartment market trends looked strong through December as the majority of the Metropolitan Statistical Areas (MSAs) registered year-over-year positive changes in both occupancy and rents (Figure 1). Only San Angelo, Lufkin, and Corpus Christi registered negative annual changes in occupancy rates.
Texas nonfarm employment added 255,000 jobs through the fourth quarter. Total nonfarm employment in Texas is just over 13 million, surpassing the February 2020 pre-COVID peak of 12.9 million. Hiring in Houston continued to increase during the fourth quarter, recovering 50,200 jobs compared with the 51,400 positions added during the third quarter. Houston payrolls remain below pre-pandemic levels. Austin added 19,400 employees, continuing a strong recovery as the metro benefits from its substantial high-tech sector, which can socially distance and was prospered during the pandemic. Employment increased by 27,100 in Fort Worth. Dallas and San Antonio registered quarterly increases of 67,900 and 17,900 workers, respectively.
Texas' goods-producing sector gained 38,900 jobs during the fourth quarter following a gain of 26,500 positions in the previous quarter. Amid increasing oil prices, energy-related employment rose by 8,900 jobs. Recovering global economic conditions supported the state's manufacturing industry, which added 13,800 employees, while durable-goods payrolls recorded 8,400 new jobs. Construction payrolls expanded this quarter, adding 16,200 jobs.
Texas' service-providing sector added 166,500 workers during the fourth quarter. Leisure/hospitality recouped 44,500 jobs, but arts/entertainment/recreation payrolls remained almost 10 percent below pre-pandemic levels. The transportation/warehousing/utilities industry added 29,800 positions, with the total employment now surpassing pre-pandemic employment by 4 percent.
With monetary policy possibly normalizing, starting with the Federal Reserve Bank's tapering of bond purchases, economic growth forecasts for the coming years point to a slow return to the long-run structural trend as the initial and strongest stage of recovery likely reached its peak. It's becoming clearer that inflation pressures will be permanent versus temporary. The ten-year U.S. Treasury bond yield quarterly average decreased to 1.5 percent during the fourth quarter, still down from pre-pandemic levels of 1.7 percent during fourth quarter 2019. The spread between apartment capitalization rates and the ten-year Treasury yield decreased through the quarter (Figure 2). The decrease in the spread was due to an increase in the yield for the ten-year Treasury bill. Overall apartment cap rates for Houston and San Antonio remain the highest, followed by DFW and Austin.
Texas' unemployment rate decreased to 4.8 percent, still higher than the national rate of 3.9 percent. The size of the state's labor force expanded while the labor force participation rate reached 63.1 percent. Texas' major metros all reported lower unemployment rates than the statewide average except in Houston, where joblessness fell to 5.5 percent. Unemployment inched down to 4.4 percent in Fort Worth. It also fell in San Antonio and Dallas to 4.4 and 4.2 percent, respectively. Joblessness remained lowest in Austin, where unemployment slid to 3.4 percent. The decrease in unemployment is important for multifamily vacancies given the relationship between unemployment rates and vacancy rates. The longer unemployment rates remain elevated, the stronger the negative impact on vacancies and rents. As expected, the increase in the unemployment rate with the recession pushed up vacancy rates in the major metros. Declining unemployment rates have been associated with falling vacancy rates (Figures 3-6). The reopening of the economy, accompanied by strong job growth, has contributed to decreasing vacancy rates. Going forward, the forecast calls for continued falls in vacancy and increases in rent.
1 Data up to April 12, 2022. Source: Texas Department of Health Services
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:
2021: 1Q2021, 2Q2021, 3Q2021
2020: 1Q2020, 2Q2020, 3Q2020, 4Q2020
2019: 1Q2019, 2Q2019, 3Q2019, 4Q2019
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