Less But Solid Growth
The U.S. and Texas economies are expected to slow in 2020 but still register solid positive growth.
In an environment of slow economic growth and well-anchored inflation expectations, the Real Estate Center expects interest rates to remain low with possibly another rate cut by the Federal Reserve of around 25 basis points. The rate cut will depend on whether weaker than anticipated economic growth occurs and/or if the trade disputes continue or escalate.
Last year, the Center predicted a slowdown in the U.S. and Texas employment that will continue through 2020. The labor market should tighten with upward pressure on wage growth.
The border metros will suffer from the U.S. and world manufacturing slowdown and low economic growth in Mexico. World economic growth will remain sluggish, especially if a U.S.-China trade agreement is not resolved.
Headwinds related to trade relations with China and slowing global economic growth will create uncertainty for business investment and hamper economic growth in the process.
Oil and Gas Not Looking Good
Based on the current crude oil price trajectory (in the $50s per barrel), drilling activity should gradually slow in 2020. For now, investors have little interest in the oil and gas sector. As a result, capital market constraints will hamper drilling expansion.
Growth in oil-and-gas-related employment will be stifled as well. Job losses in mining employment statewide could occur.
Texas Housing Market Continues Expanding
Low mortgage rates and steady employment growth will support ongoing housing demand in 2020, resulting in a greater number of sales and higher prices than in 2019.
On the supply side, increased single-family permits, housing starts, and lot development indicate positive momentum for construction in 2020. Builders are trying to build homes priced from $150,000–$350,000.
The strong run-up in single-family home prices over the past few years will reduce affordability given that household incomes are increasing at a lower rate than prices.
Young Adults Look at Apartments
Texas’ apartment markets should continue to perform well in 2020 given the low inventories of starter homes available for purchase by young adults. Millennials, still in their 20s and early 30s, continue to show more interest in leasing than buying. Consequently, vacancies should remain relatively low and rents will continue to increase.
Commercial Looks Good in Texas (with Some Caveats)
Texas industrial markets have been quite strong in recent years. However, uncertainty over U.S.-China trade negotiations could negatively impact the market in 2020 if there is no resolution or if the trade war escalates.
The retail sector should continue to perform well in 2020 with muted new construction combined with solid consumer spending.
Austin, DFW, and San Antonio office markets will continue strong. Houston, however, faces challenges with flat oil and gas activity, lingering negative effects from the 2014 oil bust, and aggressive levels of new construction.
Overall, the Center expects slower rent growth in non-residential commercial real estate in 2020.
Rural Land Prices Up, Sales Down
Based on current trends, the Center expects:
- Overall land prices to increase 0.5 percent in 2020.
- The number of sales to drop 6.7 percent.
- Total dollar sales volume to drop 6.2 percent.
Activity may vary by region.