Houston Economic Update

In the midst of the deepest recession in the experience of most Americans, many professional forecasters are optimistically heading into the year-end declaring that the worst may be over. For this rosy picture to play out, they are counting on the Obama administration and Congress to come through with a substantial stimulus package, but how is all of this affecting Houston?

Fundamentals are improving for the Houston economy, which seems to be responding to better news. The U.S. recession is apparently drawing to a close, with a wide range of measures pointing to a turnaround in the fall. Oil prices and a variety of other commodity prices have moved up in recent weeks, reacting to massive stimulus purchases out of China and to the approaching U.S. recovery. The U.S. rig count has turned up, chemicals exports have soared for some commodities and local employment was stable in June. The turn in the U.S. economy looks real, but the question for Houston’s near-term economic performance is whether the commodity markets have turned too early. Will Chinese stockpiling today mean weaker demand tomorrow as recovery sets in?

In another sign that Houston is following the national economy’s lead, the local housing markets is responding to lower mortgage rates and first-time buyer incentives. Sales of existing single-family homes are down 15 percent from a year ago (improved from a decline of 23 percent in January), and the median price has ticked up steadily all year as more expensive homes have begun to sell again. New-home sales and permits, in contrast, are still down sharply (both near 40 percent on a 12-month basis) and have yet to turn up. The median sales price has been steady for the last year.

Hopefully, Houston will continue to buck the national trend and we should see continued signs of an economic recovery through the end of this year, with improving conditions beginning next year.