COLLEGE STATION, Tex. (Real Estate Center) — Economies of four Texas metropolitan areas along the Mexico border are shaped by many factors, both from within the state and from across the Rio Grande. A new report from the Real Estate Center at Texas A&M University is monitoring factors influencing economies in Brownsville, El Paso, Laredo, and McAllen.
The inaugural edition of Texas Border Economy notes that economic activity along the Texas-Mexico border slowed late last year, particularly in McAllen and Laredo. Poor economic performance continued into first quarter 2017 for Brownsville and Laredo, dragging down housing demand for both.
“In November, McAllen went through the sharpest contraction," said Research Economist Dr. Luis Torres, “but rallied recently behind strong employment figures. El Paso remains the most stable border economy, but stagnant wages persist there."
Economies in Texas border metros differ. Business cycle indexes for Brownsville and Laredo continue to slide while they are trending upward in McAllen. Although El Paso's index slowed, it maintained its two-and-a-half-year positive trend.
An expanding labor force has pushed El Paso's unemployment rate to 5.4 percent – the metro's highest since 2015. The unemployment rate remained unchanged in McAllen (8.6 percent), Brownsville (8.0 percent), and Laredo (5.0 percent).
“Employment growth in Brownsville and Laredo abruptly decelerated in the first three months of 2017," said Torres. “In Brownsville, employment growth fell from 2.0 to 0.2 percent. Laredo dropped from 3.8 to 0.8 percent. “
Depressed wages continue to plague Brownsville and Laredo. Since 2012, earnings have dropped 26.6 percent in Brownsville. In the last year, Laredo earnings have fallen 8.8 percent.
“Wage decline has not hit McAllen," said Torres. “Hourly earnings in McAllen are up 8.4 percent year-over-year and up 29.5 percent since July 2015. El Paso continues to post stagnant wages, which are still below pre-recession levels."
The peso-per-dollar exchange rate is an important determinant of border economic performance. In March, the rate was down 2.7 percent to 18.77 pesos per dollar.
“Peso-per-dollar depreciation hinders border economies because it reduces consumption by Mexican nationals, particularly in the retail sector," said Torres. “The Laredo and Brownsville economies rely heavily on cross-border business transactions and, therefore, are disproportionately affected by currency fluctuations."
Torres adds that a weaker peso does benefit some sectors of the economy, such as those importing large quantities of goods from Mexico. In March, total value of trade activity expanded across the border. Laredo's trade activity was more than double the total amounts of the other three border metros.
Housing along the border has been affected by underlying economic trends. Laredo's first-quarter home sales were down 6.5 percent. Brownsville avoided a quarterly sales decline thanks to a higher home inventory level.
Following a strong January, home sales in El Paso declined in February and March but still posted a modest quarterly increase of 1.2 percent, said Torres. McAllen's recent economic upswing increased quarterly home sales by 8.3 percent and year-over-year sales by 14.2 percent.
“A glut of new houses in McAllen fueled the sales surge," said Torres, “as the months of inventory (MOI) for new homes remains longer than 12 months and continues climbing. The opposite occurred in Laredo, where the lack of new homes contributed to a sales contraction and an MOI of less than four months. Brownsville and El Paso posted more typical border inventory levels for new homes at 6.7 and 7.1 months, respectively."
Laredo's constricted housing inventory may expand in the near future, notes the Real Estate Center report. Single-family residential construction permits have increased in 11 of the last 12 months.
“Whether all these new permits materialize into actual new home construction depends on Laredo's overall economic condition, which is poor currently," said Torres.
The number of monthly housing permits is down substantially in McAllen. In first quarter 2017, El Paso's housing permits jumped 47.7 percent as demand increased.
Changes in existing home inventories have been more moderate in border metros. The existing home MOI in Brownsville and McAllen remains at 8.6 and 9.0 months, respectively. Existing inventories expanded in Laredo where the MOI rose to 5.9 months, the highest since last May. Higher demand in El Paso precipitated the MOI for existing homes falling to 5.1 months.
Texas Border Economy is free online.