|Research 'roundtable': The economy will remain positive in 2019, but . . .||Research 'roundtable': The economy will remain positive in 2019, but . . .||Bryan Pope||Pope||2019-02-14T06:00:00Z||Center News|
The Real Estate Center’s research team had its monthly pow-wow earlier this week. Naturally, much of the discussion focused on what to expect from the Texas economy this year. Overall, the outlook is generally positive but with a caveat.
Center Chief Economist Dr. Jim Gaines said the economy should continue to see growth but at a slower rate than the state has experienced in recent years.
“Texas is doing pretty good, but I think we’re going to see a slowdown across all Texas markets, including employment levels,” he said, adding that the economy will still remain positive. Meanwhile, at the national level, he said GDP growth could reach its highest level of the last six years.
Other takeaways from the discussion:
- At the Texas Realtors’ winter meeting, National Association of Realtors Chief Economist Lawrence Yun said interest rates won’t do much this year. They’ll probably stay in the low 5 percent range. Yun said housing affordability will continue to be a big issue for the U.S.
- Meanwhile, in Texas, home price growth is slowing. However, the median square footage in Texas homes has been dropping, which means smaller homes are on the market and could be a factor in declining sales prices.
- Capital investment may decline this year as businesses choose to pay down debt in a slowing economy rather than start new projects, said Center Research Data Scientist Gerald Klassen.
- Activity in the state’s energy sector will be neutral, Dr. Gaines said, with oil prices neither rising nor dropping significantly but staying around $50/barrel. Research Economist Dr. Harold Hunt pointed to a survey from the Federal Reserve in which 29 percent of executives from 160 oil and gas firms said they expect prices to rise to between $60 and $65.
- Mining and logging remained the state’s top industry in December 2018, said Research Economist Dr. Ali Anari. That sector created over 40,000 new jobs year over year.
For more 2019 projections from the REC research staff, read our 2019 Texas Housing & Economic Outlook report, now online.
|Robots, A.I., and the future of economic growth||Robots, A.I., and the future of economic growth||Luis B. Torres||Torres||2019-01-24T06:00:00Z||Economy|
The low rate of U.S. productivity growth—and, consequently, the fall in potential GDP growth—in the past eight years is unprecedented. Technological advancements can help reverse that trend, but it takes time to see their benefits. For example, productivity gains from computers in the '80s didn't show up until the '90s.
Recent data do not show the current wave of innovations in robotics, artificial intelligence (A.I.), and other fields as having any greater impact on business methods and techniques than earlier industrial revolutions did. In fact, automation—as exemplified by computer numerical control machinery, industrial robots, and A.I.—has raised concerns about widespread joblessness.
For centuries, people confronted with labor-saving tools and machines have been concerned not only about the effects these new tools and machines would have on their incomes, but also on the nature of their work and lives. But like past technological waves, automation will bring new jobs that increase labor demand, wages, and employment. The negative effects of automation will be counterbalanced by the creation of new tasks in which labor has a comparative advantage.
If the benefits of introducing new tasks outweigh the negatives of replacing labor with machinery, the result will be higher wages and employment. Currently, the implications of automation for wages and employment are not entirely understood. Workforce education plays a pivotal role given that industries that are relatively education-intensive have greater value and show faster productivity growth.
If productivity growth continues to depend on automation instead of labor, the relative standing of labor, together with the task content of production, will decline. The creation of new tasks and other technologies raising the labor intensity of production and the labor share are vital for continued wage growth commensurate with productivity growth.
|Oil prices whipsaw||Oil prices whipsaw||Charles Gilliland||Gilliland||2019-01-16T06:00:00Z||Economy|
In a December blog post, I looked at quarterly oil prices (Looking ahead: The link between oil and land prices). Well, guess what has happened since those futures traders switched from anticipating higher oil prices to expecting lower prices? The chart shows a steep plunge in prices just as the election season climaxed and afterward.
Now, although they are slightly higher, futures prices differ little from spot prices. This whipsaw of prices suggests an atmosphere fraught with uncertainty about the future, at least in oil and by extension in Texas land markets as well.
|The three wise chairmen: Notes from Fed chairs past and present||The three wise chairmen: Notes from Fed chairs past and present||Luis B. Torres||Torres||2019-01-11T06:00:00Z||Economy|
Recently I had the opportunity to attend the American Economic Association’s (AEA) annual meeting in Atlanta. The meeting brings together economists from around the world, representing different fields and sectors, to discuss monetary policy, technology, globalization, and more.
One discussion panel I attended was the Federal Reserve Chairs Joint Interview. The panel included current Federal Reserve Chairman Jerome Powell and past chairmen Janet Yellen and Ben Bernanke—three important economic figures who played pivotal roles during the Great Recession and afterward. Here are some takeaways from the discussion.
The panelists had no serious concerns about current U.S. economic conditions, nor did they see any red flags pointing to high inflation due to wage increases. This year, they are expecting slower U.S. and world economies, but they also expect the U.S. to break its record for economic expansion this summer. They noted conflicting signals between data and the financial markets, possibly due to financial markets pricing downside risk ahead of future results because of policy uncertainty generated by the federal government. As Bernanke likes to say, there is no “Wile E. Coyote” moment in the short-run horizon for the U.S. economy. The current Federal Reserve chairman went on to say that monetary policy formulation is quite flexible and is data-dependent.
With respect to nontraditional monetary policy tools, they see both forward guidance and quantitative easing as being successful in overcoming the Great Recession. Neither led to hyperinflation or asset bubbles. Also, the Federal Reserve’s ability to become more flexible in making changes based on the underlying data were and are important. In addition, transparency and communication improvements to the public played an important role in overcoming the financial crisis.
All three economists agreed that the Federal Reserve's monetary policy decisions are best made without political influence. Janet Yellen and Ben Bernanke added that comments made against the Federal Reserve and its present chairman by the current administration undermine confidence in the Federal Reserve to achieve its goals. When asked directly if he would resign if asked by the president, Chairman Powell answered with a simple and convincing "no."
They argued that the financial system post-Great Recession is more resilient to future crises because of banks being more capitalized, the implementation of stress tests on the banking system, supervisory innovation leading to the public's understanding of what is happening, and better risk management. But there is more work to be done in the area of macroprudential tools and possibly creating a financial stability board that looks at asset prices and caps loans to risky markets. There is a lack of tools in the U.S. compared with other countries. Canada, for example, has a systematic institution that supervises asset prices and has emergency lending tools.
The panelists also discussed the relationship between high inflation and low unemployment (known as the “Phillips Curve”) and how this relationship is currently weak, meaning wage increases would not cause inflationary pressures as labor markets heat up.
Regarding balance sheet normalization, they agree that the balance shrinkage by the Federal Reserve has a small effect on financial markets. Powell said they currently don’t believe balance sheet normalization has an effect on financial markets, but if it did they would change policy formulation.
Dr. Torres will share more insights from the AEA conference in upcoming blog posts.
|Helping Texans through relevant research||Helping Texans through relevant research||Gary Maler||Maler||2018-12-13T06:00:00Z||Center News|
I have been reading a lot lately about disruption of companies and whole industries. One statistic stands out. About 90 percent of Fortune 500 companies that existed in 1955 are gone. They’ve gone bankrupt, merged, or still exist as shadows of their former selves and are no longer on the list.
The life expectancy of companies and industries continues to shrink. The pace of disruption is increasing. Innovation and future-proofing are the means to survive.
The Center is adapting in this environment as well. The legislature laid out our mission very clearly when they created us. That mission is still deeply relevant: “Conduct studies in all areas related directly or indirectly to real estate and/or urban and rural economics and disseminate results and findings.” In other words, conduct the research and get the information into the hands and minds of Texans (consumers, real estate professionals, homebuilders, commercial building contractors, attorneys, homebuyers, home sellers, policy-makers, and a host of other stakeholders).
Clarity about an organization’s mission is critical to sustained success. We’ve simplified the way we think about our mission: “Help Texans make better real estate decisions.”
Though our mission (the why of what we do) has not changed, our strategies and initiatives have and will continue to evolve. Here are some examples.
We now focus almost exclusively on forecasting—looking forward and anticipating future business, economic, and real estate activity.
Our researchers once worked on projects in isolation. Today that is rare—collaboration is the new normal. Drawing on the synergy of bright minds and expert observations of many enriches our results.
We now think of ourselves as explorers looking for new patterns in business and economic fundamentals that drive real estate activity and whole economies. The underlying fundamentals may have changed or at least the priorities of those drivers shifted. We don’t yet know, but we are on the hunt.
Finally, we are experimenting with the best ways to get our findings into your hands. We now think in terms of data visualization, geospatial analytics, and presenting data at the most usable and meaningful local level we possibly can.
We are using every media at our disposal to reach Texans. I’m sure the coming year will bring new, exciting contacts with our ever-expanding audiences. Stay tuned.
|Looking ahead: The link between oil and land prices||Looking ahead: The link between oil and land prices||Charles E. Gilliland||Gilliland||2018-12-03T06:00:00Z||Land|
Source: Haver Analytics
Statistical evidence shows that oil prices have a significant effect on Texas land prices. Specifically, although the impact is not immediate, higher (lower) oil prices tend to boost (dampen) Texas rural land prices in the long run. This impact suggests that changes in the direction of oil prices may signal a long-run shift in land market trends.
The chart shows current spot prices (blue line) for West Texas intermediate crude oil along with contract prices for delivery of that oil in both one (red line) and two (green line) years. When prices for future delivery range above (below) current spot prices, market participants expect prices in the future to range higher (lower) than current prices.
From 2015 through the beginning of 2017, markets anticipated rising oil prices. However, markets began to anticipate falling oil prices beginning in second quarter 2017. The difference between current and futures prices has begun to expand, signaling that traders anticipate declining oil prices.
Do these expectations portend a reversal in Texas land price trends? The answer is maybe, but . . .
First, other forces also affect land markets. Income expansion, interest rate dynamics, and history also play substantial roles in land market trends. Second, responses to oil price changes have had varying impact on land prices in the past. Finally, futures prices rely on guesses by market participants about future realities.
Actual results likely will differ from those projections. Anticipated oil price erosion may not become reality. In the final analysis, the significance of this chart lies in the revelation that market perceptions about oil prices have shifted. The factors that contributed to that shift may influence thinking among land market participants.
|Who let the dog out?||Who let the dog out?||Bryan Pope||Pope||2018-10-24T05:00:00Z||Housing|
In the early days of the Real Estate Red Zone podcast, we had a tradition each Halloween of sharing horror stories from real estate professionals. By "horror stories" I mean real estate transactions gone hilariously bad, and by "tradition" I mean we did it twice over nine years.
Anyway, next week we're resurrecting the fun with a slew of stories for your listening enjoyment. In the meantime, here's an experience from a College Station Realtor friend of mine. He said it warranted a change of pants.
"I was representing the homebuyer and had confirmed with the listing agent that it was okay to show his listed property on the following day. The property was a rather decrepit home in an older part of town, and the listing notes indicated that the owner had a dog that would bark at us when we got there, but there was nothing to fear in terms of personal safety.
"The buyer and I arrived the following day, right on time for the showing. I noticed a car in the driveway, which was a little odd, considering real estate agents usually advise their seller clients to leave the property during showings.
"Usually I use the lockbox to get the key, then I call out when I step inside so anyone who is still in the house will know I am there. This situation seemed a bit off, so I knocked on the door and, true to form, the barking begins, but no one answers. The bark sounded like that of a small terrier with an inferiority complex—high pitched, ferocious, and incessant. I rang the doorbell. Still no answer, and the barking intensified. At this point, I figured I should go with plan A (get the key from the lockbox and call out).
"I got the key, unlocked the door, and opened it a crack. The dog wasn't visible, but the barking was loud enough for me to tell he was nearby. I also heard the faint sounds of a shower running.
"I stepped inside with my client behind me, and the dog was about five feet away, yipping his little head off. He was a white terrier mix about the size of a schnauzer. I called out again, sure that there was someone in the house that the little dog was protecting. Sure enough, a rather confused-looking elderly man emerged from a bedroom doorway with wet hair and a towel around his waist. Clearly there had either been some miscommunication about the showing or he had forgotten about it.
"The man asked that we step back outside while he got dressed and put the dog away. As we did, the dog seized his opportunity and lunged for my calf, ripping my pants and almost breaking the skin. He left a bruise.
"Seeing this, the buyer lost all interest in the property, and we left, never to return."
The moral, my friend said, is sellers need to crate or remove dogs before showings. It might cost them more than a new pair of trousers.
For more stories, tune into next week's Real Estate Red Zone podcast.
|Cramping our fracking style||Cramping our fracking style||Bryan Pope||Pope||2018-10-18T05:00:00Z|
English is fun, isn’t it? And I mean "fun" in a just-beat-me-over-the-head-with-an-Oxford-English-Dictionary-until-I’m-unconscious kind of way.
Take the word "fracing," for instance. Not familiar with it? You must not work in the oil and gas industry. How about "fracking"? Ah, that rings a bell.
These two spellings have occasionally been the subject of lighthearted controversy here at the Real Estate Center. So much so that they earned their own entry in our office style guide.
Some quick background for the uninitiated: fracing and fracking are both shorthand for "hydraulic fracturing," which is the process of injecting liquid at high pressure deep into a well to create tiny fissures in the rock, allowing gas and oil to flow into the well. Same meaning but slightly different spellings ("fracing" being the standard spelling within the oil and gas industry).
I did a lot of reading on the subject before recommending the Center depart from the industry standard and adopt the k-inclusive spelling, and the most informative piece on the subject came from drillers.com. You can read that yourself (and you should because it’s interesting). Instead, let’s skip down to the reader feedback. That’s always fun. One reader wrote:
"My first encounter with the 'k' spelling was in a news article of a major national publication about five years ago. The article was clearly slanted against the entire practice of hydraulic stimulation. I responded to the author that there is no 'k' in the root word 'fracturing' and it made no sense to spell the word 'frack' or 'fracking.' The author wrote back that 'inclusion of the k made the word sound more evil.' I forwarded this email to the author’s chief editor and encouraged the editor to demand objective reporting from his employees and to save editorials for the editorial pages."
"More evil"? True, the shorthand use, regardless of how it’s spelled, is itself viewed by some in the drilling industry as a pejorative. Rest assured that this is not, nor has it ever been, the case here at the Real Estate Center.
But back to the spelling. All industries and occupations have their own lingo and terminology, and we generally follow industry standards. Sometimes, though, we have to consider the greater good—in this case, clarity for our general audience.
Read those words again out loud: Fracing. Fracking. Fracing. Fracking.
I’m willing to bet the first inclination for many of you was to pronounce the no-k version as "fray-sing." Hey, I did when I first read it. But "frack-ing" (pronounced like "lacking") is the proper pronunciation for both. As an editor, the last thing I want is our readers tripping over a word simply because they followed basic rules of English pronunciation (“rules” that frequently contradict themselves and make me consider expatriating somewhere that has a language that makes more sense, but whatever).
Google backs us up. Searching for "fracking" just now turned up about 10.8 million results. "Fracing" brought back a comparatively scant 414,000 and the question "Did you mean 'fracking'?"
Also worth noting: A spell check of this article showed five misspellings, all for the same word. Guess which one.