Texas economy knocked down, but not out, by Harvey

​COLLEGE STATION – Despite the severe damage Hurricane Harvey caused along much of the Texas coast, Real Estate Center Chief Economist Dr. Jim Gaines says the state’s economy should finish 2017 in good shape.

"We were looking at the state to have a really strong 2017, and we really still are for most of the state," Gaines said. "Before the storm, exports were up, the housing market was doing well, jobs were being added, and we added close to 450,000 people to the state’s population, about half of whom immigrated from other countries or other states. The hurricane is going to have some impact on that."

Gaines said 2017 was projected to be another record year for home sales, with sales increasing 4 to 5 percent.

"That’s probably going to flatten out," he said. "Houston accounts for about 25 percent of the state’s housing activity, and that’s going to slow considerably for at least two or three months. Some of that is simply because the transaction infrastructure of the title companies, appraisers, mortgage lenders, and so forth is going to be overwhelmed for at least 30 to 60 days.

"The August home sales numbers we just compiled showed Houston was down something like 26 percent, and Harvey didn’t even hit until the last two or three days of the month. That tells us the market was starting to slow down anyway. The effects of Harvey are just going to exacerbate that slowdown."

Prices, on the other hand, are not going to slow down—at least not much.

"We were anticipating price increases of 5 to 6 percent before the storm," Gaines said. "Of course, we’re going to lose some of the measures from the Houston area. Statistically, for the state as a whole, we’re probably going to still see price increases of between 4 and 5 percent."

Gaines said the state’s gross domestic product (GDP) will probably get knocked down a couple of tenths of a point from the lost productivity and output, particularly out of Houston and the coastal region.

"Where we had anticipated GDP growth of somewhere around 3.5 or 3.6 percent, it’ll probably come in at 3.3. or 3.4 percent," Gaines said. "But it’s a temporary impact. We’re expecting a strong bounce​back in 2018. With the reconstruction activity and the amount of capital that will probably be flowing into the state for rebuilding and remodeling, we’re anticipating that the state GDP growth for 2018 will move upward a couple tenths of a point more than we otherwise would have expected. And we were already anticipating a reasonably strong 2018. But that increase is just replacing lost wealth, not truly a net growth.​"

For more from Gaines on Harvey’s economic impact, listen to this week’s Real Estate Red Zone podcast.​