2008 Economic and Housing
Outlook
May 20, 2008
Dr. James P. Gaines
Research Economist
Real Estate Center
Real Estate Center
at Texas A&M University
REAL ESTATE CENTER
at TEXAS A&M UNIVERSITY
Mays School of Business
Mays School of Business
recenter.tamu.edu
Publications
P bli ti
Tierra Grande
Monthly Economic
Reports
Market Reports
Technical Reports
RECON Newsletter REC Website
2
p
Topics for Discussion
• US, Texas and Local Economy
Housing Activity
• Housing Activity
– Sales
– Prices
– Construction
– Affordability
• Mortgage and Capital Markets
– Interest Rates
– Foreclosures
– Regulatory Changes
Demographic Trends
• D hi T d
3
Challenging and Uncertain
Economy 2008
Definite Economic Slowdown: Recession?
• D fi i E i Sl d R i ?
• Soft Housing Market
• Interest Rates and Capital Markets
• Inflation and Consumer Spending
• Unemployment
p p g p
• Corporate spending and expansion
• Political uncertainty
Wait and See attitude pervasive
• “Wait and See” attitude pervasive
4
Percent Growth in Real GDP Since 1990
( g Q )
(Percent Change From Previous Quarter)
8.0 7.3
7.5
7.0 6.7
6.4
6.2 6.2
60
6.0 5.5
5.3
5.1
4.9
5.0 4.7
4.5
4.8 4.8
4.5
4.7 4.8
4.5
4.8
4.2 4.1
3.9 4
4.0 3.3 3.4 3.4
3.4 3.5 3.6
3.5
3.8
3 2.9 3.1 3 3 3.1
3.0 2.6
2.3
2.7 2.7
2.4
2.7
2.5
2.8
2.4
2.2
1.9
1.9 2 2.1 2.1 2.1
2.0 1.6
1.1 1.2 1.2 1.2 1.1
1 1 0.6
1.0
10 0.5
0.7 0.6
06 0.6
06
0.2
0
0.0
‐0.5 ‐0.5
‐1.0
‐1.4
‐2.0 ‐2
‐3.0 ‐3
‐4.0
1Q1990
3Q1990
1Q1991
3Q1991
1Q1992
3Q1992
1Q1993
3Q1993
1Q1994
3Q1994
1Q1995
3Q1995
1Q1996
3Q1996
1Q1997
3Q1997
1Q1998
3Q1998
1Q1999
3Q1999
1Q2000
3Q2000
1Q2001
3Q2001
1Q2002
3Q2002
1Q2003
3Q2003
1Q2004
3Q2004
1Q2005
3Q2005
1Q2006
3Q2006
1Q2007
3Q2007
1Q2008
5
Source: Bureau of Economic Analysis
‐2.0%
‐1.5%
‐0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2 0%
‐1.0%
1 0%
Jan‐00
Apr‐00
Jul‐00
Oct‐00
Jan‐01
Apr‐01
Jul‐01
Oct‐01
Jan‐02
Apr‐02
Jul‐02
Oct‐02
Jan‐03
Apr‐03
Jul‐03
Oct‐03
Jan‐04
Apr‐04
Jul‐04
Oct‐04
Jan‐05
Apr‐05
Jul‐05
Source: BLS, Texas Workforce Commission
Oct‐05
Jan‐06
Apr‐06
Jul‐06
Oct‐06
Jan‐07
Apr‐07
U. S. Employment Growth Rate
Jul‐07
6
Oct‐07
Jan‐08
1.0
2.0
20
3.0
4.0
5.0
6.0
7.0
-86
Jan-
-86
Jul-
-87
Jan-
-87
Jul-
-88
Jan-
g
-88
Jul-
-89
Jan-
-89
Jul-
-90
Jan-
-90
Jul-
-91
Jan-
-91
Jul-
-92
Jan-
-92
Jul-
-93
Jan-
-93
Jul-
-94
Jan-
-94
Jul-
-95
Jan-
-95
Jul-
-96
Jan-
-96
Jul-
-97
Jan-
-97
Jul-
-98
Jan-
-98
Jul-
-99
Jan-
-99
Jul-
-00
Jan-
Source: Bureau of Labor Statistics
-00
Jul-
-01
Jan-
-01
Jul-
Yr/Yr Rate of Change in the Monthly Index, US Urban, All Items
-02
Jan-
-02
Jul-
-03
Jan-
-03
Jul-
-04
Jan-
-04
Jul-
-05
Jan-
-05
Jul-
-06
Jan-
7
-06
Jul-
-07
Jan-
Targeted Overall Inflation Rate
-07
Jul-
-08
Jan-
y
We Finally Got There !!
8
p
What to Expect
• Look for the Fed to cut interest rates
further in spite of inflation
• Gasoline prices will continue to increase
• Massive federal bailout of the banks and
financial institutions labeled as being for
American consumers/borrowers
• Higher inflation and higher taxes
• 2008-2009: high inflation, low economic
growth, job losses, low interest rates
9
Texas and Local
Economy
• Running Ahead of US Economy
• Employment Steady Increase
• Low Unemployment
• Personal Income Growth
• Population Growth
• Housing market still relatively strong
10
Job-
Top 10 Job-Creating States in 2007
Thousands of jobs created December 2006 to December 2007
300
236 90
236.90
250
200
150
100 78.00
67.60 67.10
44.90 41.60 31.40
50 36.20 35.40
25.00
0
arolina
Illinois
uisiana
ington
Colorado
eorgia
abama
Utah
Texas
w York
North
New
Ge
N
Ala
Ca
Lou
Washi
11
Source: BLS
Job-
15 Top Job-Creating MSAs in 2007
Thousands of jobs created December 2006 to December 2007
110
100 94.2
90
80 75.3
70 66.5
60
50 46
40 35.8
30 23.2 22.7 22
21.5
21.1 21 20.6 19.5 19.2 18.8
20
10
0
Salt Lake City
Seattle
Raleigh
rancisco
Boston
Denver
Charlotte
Houston
Dallas-F Worth
Atlanta
Austin
Chicago
San Antonio
Washington DC
New York
Ft
C
H
C
San Fr
N
L
12
Source: BLS
‐4%
‐3%
‐2%
‐1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Jan‐00
Apr‐00
Jul‐00
Oct‐00
Jan‐01
Apr‐01
Jul‐01
Oct‐01
Jan‐02
Apr‐02
Jul‐02
Oct‐02
Jan‐03
Apr‐03
Jul‐03
Oct‐03
Jan‐04
Apr‐04
Jul‐04
Oct‐04
Jan‐05
Growth Rates
Midland
Apr‐05
Source: BLS, Texas Workforce Commission
Jul‐05
Oct‐05
Jan‐06
Apr‐06
US
Jul‐06
Oct‐06
Jan‐07
Midland & Odessa Employment
Apr‐07
Jul‐07
Texas
Oct‐07
Odessa
Jan‐08
13
The Texas Outlook for 2008
• US job growth less than 1%
j growth rate
• Texas will double the national job g
• Houston, Austin and San Antonio will exceed the
state level, Dallas and Ft. Worth likely to be
closer to the national growth trend
• Texas housing markets generally strong but
“spotty”
spotty
• Mortgage interest rates unlikely to change much
credit,
• Fall in residential demand: tighter credit less
investment buying?
p y
• Rent and occupancy rates of Texas commercial
real estate will continue to rise
The US Housing Market
The “Un‐Magnificent Seven”:
California
Florida
Nevada
Arizona
o a
Indiana
Ohio
Michigan
15
Housing Market Boom
2001-
2001-2006
1. Historically low interest rates
2. Record home price increases in selected areas, followed by
declines
3
3. Flood of private capital led to Wall Street dominance in the
residential mortgage market
4. Extraordinary investor/speculator demand
5. Surge in second/vacation home demand
6. “Non traditional” loans removed former barriers to home
hi lti in leap i th h
ownership resulting i a l hi t
in the homeownership rate
7. Hyper-aggressive “easy credit, easy terms” financing
8
8. Rise and fall of home affordability
16
2006-
Housing Fall Off 2006-08 . . .
• Unlike past housing downturns, this one not preceded
by rising interest rates, unemployment or recession
• Causes:
End f “E C dit Easy Terms”
– E d of “Easy Credit – E T ”
– Excess building in fast growing markets
Slowdown i appreciation – d li i h
– Sl d in i ti i
declining home prices
– Falling affordability leading to lower user demand
– Fall off of speculative building and “investor” market
17
US Homeownership Rate and the
(Percent)
70.0
30-
FHLMC 30-Year Fixed Rate (Percent)
20
Homeownership Rate (left scale)
19
69.0 1980-1985 18
Mortgage interest
rate exceeds 12%; 17
68.0 Homeownership 16
plummets
15
67.0
67 0 14
Since 1997
13
Low interest
66.0 rate and new 12
mortgage
products;
11
65.0 Homeownership 10
explodes
9
64.0 8
1970s
Baby Boomers 7
63.0 enter market; 6
homeownership FHLMC 30‐Year Rate (right scale)
grows 5
62.0 4
2Q1971
2Q1972
2Q1973
2Q1974
2Q1975
2Q1976
2Q1977
2Q1978
2Q1979
2Q1980
2Q1981
2Q1982
2Q1983
2Q1984
2Q1985
2Q1986
2Q1987
2Q1988
2Q1989
2Q1990
2Q1991
2Q1992
2Q1993
2Q1994
2Q1995
2Q1996
2Q1997
2Q1998
2Q1999
2Q2000
2Q2001
2Q2002
2Q2003
2Q2004
2Q2005
2Q2006
2Q2007
2Q2008
18
Source: US Census Bureau; FHLMC (4‐quarter moving average homeownership rate)
(000s)
1,000
2,000
3,000
4 000
4,000
5,000
6,000
7,000
0
Jan-68
Jan-69
Jan-70
Jan-71
Jan-72
Jan-73
Jan-74
Jan-75
Jan-76
Jan-77
Jan-78
Jan-79
Jan-80
Jan-81
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
E i ti
Sources: US Census Bureau , NAR, NAHB, NBER
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Existing SF S l
New SF Sales
Jan-00
Jan-01
Sales
Jan-02
Jan-03
Jan-04
New and Existing SF Home Sales U.S.
Jan-05
Jan-06
19
Jan-07
Jan-08
$250,000
US Median Home Prices Since 1990
$225,000 National House
Price Bubble
$200,000
Prices in 2001 stayed above trend,
$175,000
despite a national recession.
$150,000
$125,000
The national housing boom started
dJ 2002 i
around January 2002 creating a
house price bubble that peaked at
$100,000
around $230,000 in 2006
$75,000
$50,000
0
Jan-90
1
Jan-91
Jan-92
2
3
Jan-93
Jan-94
4
5
Jan-95
Jan-96
6
Jan-97
7
Jan-98
8
Jan-99
9
0
Jan-00
Jan-01
1
2
Jan-02
3
Jan-03
Jan-04
4
Jan-05
5
6
Jan-06
7
Jan-07
8
Jan-08
Jan-09
9
Jul-90
0
1
Jul-91
Jul-92
2
3
Jul-93
4
Jul-94
5
Jul-95
6
Jul-96
Jul-97
7
Jul-98
8
9
Jul-99
Jul-00
0
1
Jul-01
2
Jul-02
3
Jul-03
4
Jul-04
5
Jul-05
6
Jul-06
7
Jul-07
Jul-08
8
20
Source: NAR, Real Estate Center at Texas A&M University
50
60
70
80
90
100
110
120
130
140
150
(000)
0
Jan 1990
0
Jul 1990
1
Jan 1991
1
Jul 1991
2
Jan 1992
2
Jul 1992
3
Jan 1993
3
Jul 1993
4
Jan 1994
4
Jul 1994
5
Jan 1995
5
Jul 1995
12-
6
Jan 1996
6
Jul 1996
7
Jan 1997
7
Jul 1997
8
Jan 1998
8
Jul 1998
9
Jan 1999
9
Jul 1999
0
Jan 2000
0
Jul 2000
1
Jan 2001
1
Jul 2001
12-Month Moving Average
2
Jan 2002
2
Jul 2002
Source: US Census Bureau, Real Estate Center at Texas A&M
3
Jan 2003
3
Jul 2003
4
Jan 2004
4
Jul 2004
5
Jan 2005
5
Jul 2005
US SF Housing Permits
6
Jan 2006
6
Jul 2006
7
Jan 2007
7
Jul 2007
8
Jan 2008
21
Inventory of New SF Homes For Sale
(000s Units) Months Inventory
800 10
750 9.5
700
Excess of about 475,000 units 9
650
plus new construction in 2008 at
plus new construction in 2008 at 8.5
600
annual sales of around 700,000 8
550 will take several years to get back 7.5
500 t b l
to balance 7
450 6.5
400 6
350 5.5
300 5
250 4.5
200 4
150 3.5
100 3
Feb-01
Jun-01
Feb-02
Jun-02
Feb-03
Jun-03
Feb-04
Jun-04
Feb-05
Jun-05
Feb-06
Jun-06
Feb-07
Jun-07
Jul-00
Jan-00
Mar-00
Oct-00
Dec-00
Oct-01
Dec-01
Oct-02
Dec-02
Oct-03
Dec-03
Oct-04
Dec-04
Oct-05
Dec-05
Oct-06
Dec-06
Oct-07
Dec-07
May-00
Apr-01
Aug-01
Apr-02
Aug-02
Apr-03
Aug-03
Apr-04
Aug-04
Apr-05
Aug-05
Apr-06
Aug-06
Apr-07
Aug-07
22
Source: US Census Bureau, NAHB
23
Mortgage & Capital Markets
• Problems more severe than anticipated
– Pricing mortgage-backed assets
– Capital requirements/solvency among institutions
– Loss of confidence in debt ratings
– Plethora of proposed legal/regulatory changes
– Mergers, acquisitions and/or failures
– Law suits
• Traditional mortgage loan underwriting
g y
• Foreclosures high into 2009 and early 2010
• Mortgage delinquency/default contagion to business &
consumer markets
Liquidity i k t b d k h t / illi t
• Li idit in market, nobody knows how to/willing to
lend 24
Total HH Home Mortgage Borrowing
1,100
1,029
1,000
$0.5 trillion in home mortgages between 1972 and 1979; 988
$1.5 trillion in home mortgages between 1980 and 1989; 940
900
$2 12 illi i h b 1990 d 1999
$2.12 trillion in home mortgages between 1990 and 1999; 856
800 $6.1 trillion in home mortgages between 2000 and 2007
709
700 655
600
$Billions
507
500
379 386
400
302
300
222 216 225
199 199 206 216
200 180 174 171
157 167 154
127
106 117 105
86 90
100 58 67
47
34 40 37 40
0
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: Federal Reserve, Flow of Funds, D-2, 3/6/2008 25
Current Residential
Finance Conditions
• 65% of US owner-occupied homes have a mortgage
(64% in Texas) – 76% fixed-rate
• About 7.5 million, 13%-14% of all mortgages, are
subprime loans
• 75 percent of all subprime loans originated since 2003
two thirds
• About two-thirds of subprime loans in ‘05 and ‘06 were
ARMs
q y y
• Total home equity is less than 50% and as many as 10%
of homeowners have negative equity
• Falling home prices in key areas is the key factor to
defaults d f l
d f lt and foreclosures
26
Owner-
Mortgage Status of Owner-Occupied
Homes in T Texas
Number of Percent of
Owner- Total Units Percent
Occupied with of Total
Homes Mortgage O-O Units
Total 5,291,045
Housing units with a mortgage, contract to
H i it ith t t tt
purchase, or similar debt: 3,368,890 63.7%
First Mortgage only: No second mortgage
and no home equity loan
q y 2,987,396 88.7%
With either a second mortgage or home
equity loan, but not both: 369,986 11.0%
Second mortgage only 173,269 5.1%
Home equity loan only 196,717 5.8%
With both a second mortgage and home
equity loan 11,508 0.3%
Housing units without a mortgage 1,922,155 36.3% 27
Source: U.S. Census Bureau, 2006 American Community Survey
Percent of Foreclosures Started
by T fL 4Q200
b Type of Loan 4Q2007
Percent of Percent of
Outstanding Foreclosures
Type of Loan Loans Started
California and Florida have 39% of all prime ARM loans, but 47% of foreclosure
p ; p
starts for prime ARMS; the two states have 29% of Subprime ARMs and 36% of
subprime ARM foreclosures. 4Q06‐4Q07 foreclosures in FL tripled; CA doubled.
28
Source: Mortgage Bankers Association, National Delinquency Survey, March 6, 2008
US Mortgage Delinquency Rates
18.0
18 0
17.3
17.0
16.0
15.0
14.0
Subprime Mortgages
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
All Mortgages (average = 4.7%) 5.8
5.0
4.0
Prime Mortgages (average = 2.5%) 3.2
3.0
2.0
10
1.0
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
29
Source: Mortgage Bankers Association, National Delinquency Survey
US Mortgages in Foreclosure
at the End of the Quarter
10.0
8.65
9.0
8.0
7.0
6.0 Subprime Loans
5.0
4.0
40
3.0
2.04
20
2.0 oa s (a e age 4%)
All Loans (average 1.24%)
Prime Loans (average 0.5%) 0.96
1.0
0.0
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
30
Source: Mortgage Bankers Association, National Delinquency Survey
Total Delinquency & Foreclosure Filings
2007
• US 2,203,295, up 75%
Texas 149,703, down 4.6% (1 of only 6 down)
• Texas 149 703 down 4 6% (1 of only 6 down)
– California 481,392, up 238%
– Florida 279,325, up 124%
– Ohio 153,196, up 88% 16 states
– Michigan 136,205, up 68%
doubled or
– o a 69,9 0, up 5 %
Arizona 69,970, up 151%
– Nevada 66,316, up 215% DC
more; D.C.
– Virginia 24,199, up 456% was up
– Maryland 25,109, up 455%
Maryland 25 109 up 455% 608%
– Connecticut 23,470, up 100%
– Massachusetts 41,487, up 161%
Source: RealtyTrac, Inc.
Data include all default, delinquency and foreclosure filings reported. The same property often has more than one filing. 31
y g
Monthly Foreclosure Filings
100,000
Texas foreclosures have been moderate compared to US
90,000
trend. US foreclosures were up 97% Dec 06 to Dec 07.
80,000
Texas was down 13.7% Dec 06 to Dec 07 .
70,000 US
60,000
50,000
40,000
30,000
20,000
20 000
Texas
10,000
0
Jun‐05
Jul‐05
Aug‐05
Sep‐05
Oct‐05
Nov‐05
Jan‐06
Mar‐06
May‐06
Jun‐06
Jul‐06
Aug‐06
Sep‐06
Oct‐06
Nov‐06
Jan‐07
Mar‐07
May‐07
Jun‐07
Jul‐07
Aug‐07
Sep‐07
Oct‐07
Nov‐07
Dec‐05
Feb‐06
Apr‐06
Dec‐06
Feb‐07
Apr‐07
Dec‐07
Source: RealtyTrac, Inc. 32
Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
Texas and the
T d h
Odessa - Midland
Housing Markets
33
Texas Home Sales
2007 failed to “stack” on the previous years, but ended better than 2005.
35,000
30,000
2006
2007
2005
25,000
2004
2003
20,000
2002
15,000
15 000
2007 Sales down 6.4%
10,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
34
Source: Real Estate Center at Texas A&M University
Texas Home Sales
12- Mo ing A erage
12-Month Moving Average
26,000
24,000
Sales “Bubble”
Sales Bubble
22,000 Reverting to
long‐term trend
20,000
18,000
16,000
14,000
12,000
10,000
8,000
96
96
97
97
98
98
99
99
00
00
01
01
02
02
03
03
04
04
05
05
06
06
07
07
08
08
09
Jan‐9
Jul‐9
Jan‐9
Jul‐9
Jan‐9
Jul‐9
Jan‐9
Jul‐9
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Jul‐0
Jan‐0
Source: Real Estate Center 35
Annual Texas Home Sales
2007 Trend
310,000
310 000
296,750
290,003
2007 = 272,200 along the trend line, 285,000
290,000
about 5% decline. YTD = 234,453, 266,519
272,177
270,000 down 5%. ,
260,000
250,000 2008 = 260,000 (5% less) to 285,000 240,870
(trend)
230,000 2009 = 260,000 (30 sales/1,000 HH) 216,099
210,000 to 296,750 (trend)
, ( ) 201,528
196,401
188,738
190,000 184,056
170,638
170,000
146 395
146,395
150,000
150 000 138,123
130,000 116,604
122,134121,823
107,107
110,000 100,047 99,619
90,000
70,000
,
50,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008p
2009p
36
Source: Real Estate Center at Texas A&M University
Annual Texas Home Sales
2003 Trend
310,000
310 000
290,003
290,000 2007 = 272,200 along the trend line,
about 5% decline. YTD = 234,453, y = 9676x + 78095 266,519
272,177 271,615
270,000 down 5%. 261,939
250,000 2008 = 262,000 (30 sales/1,000 HH, 240,870
5% less)
230,000 2009 = 272,000 (equal to 2007) 216,099
210,000 196,401
201,528
188,738
190,000 184,056
170,638
170,000
146,395
146 395
150 000
150,000 138,123
130,000 116,604
122,134121,823
107,107
110,000 100,047 99,619
90,000
70,000
,
50,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008p
2009p
37
Source: Real Estate Center at Texas A&M University
Odessa-
Odessa-Midland Monthly MLS Home Sales
400
2007 home sales declined 9.8%, but YTD 2008 up 4.0%
350
2006
300
2007
250
2008
200
2003 2004
150 2005
100
Sept
S
Jan
J
F
Feb
Mar
M
Apr
A
May
M
Jun
J
J
Jul
Aug
A
Oct
O
N
Nov
Dec
D
Source: Real Estate Center at Texas A&M University
140
150
160
170
180
190
200
210
220
230
240
50
250
260
270
280
290
300
310
96
Jan‐9
96
Jul‐9
97
Jan‐9
97
Jul‐9
98
Jan‐9
98
Jul‐9
99
Jan‐9
99
Jul‐9
12-
Odessa-
00
Jan‐0
00
Jul‐0
01
Jan‐0
01
Jul‐0
02
Jan‐0
02
Jul‐0
03
Jan‐0
03
Jul‐0
04
Jan‐0
04
Jul‐0
05
Jan‐0
Source: Real Estate Center at Texas A&M University 05
Jul‐0
12-Month Moving Average
Mo ing A erage
06
Jan‐0
06
Jul‐0
07
Jan‐0
07
Jul‐0
08
Jan‐0
Odessa-Midland Home Sales
39
08
Jul‐0
09
Jan‐0
US and Texas Median Home Prices
$240,000
Texas is a housing bargain.
The gap between the US and Texas
$215,000
median price has widened from around
25% to 33%.
$190,000
,
$165,000
$140,000
$115,000
$90,000
$65,000
,
$40,000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
40
Source: NAR; Real Estate Center at Texas A&M University
-1%
1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
1Q1997
2Q1997
3Q1997
4Q1997
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
US average = 6.6%
2Q1999
Texas average = 4.7%
3Q1999
4Q1999
Q
1Q2000
2Q2000
3Q2000
4Q2007:US = 0.8%, Texas = 5.2%
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
g
4Q2002
Source: OFHEO
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
4Q2007 HPI Percent Change Year over Year
4Q2007 HPI Percent Change Year over Year
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
US and Texas Appreciation
3Q2006
US
4Q2006
1Q2007
2Q2007
41
3Q2007
Texas
4Q2007
US, Texas, California and Florida Appreciation
4Q2007 HPI Percent Change Year over Year
4Q2007 HPI Percent Change Year over Year
30%
28%
26% US average = 6.6%
24% Texas average = 4.7%
22% 11.5%,
4Q2007:US = 0.8%, Texas = 5.2%, California = -11.5%,
20%
18%
Florida = -8.5%
Florida
16%
14%
12%
10%
8%
Texas
6% US
4%
2%
0%
-2%
-4%
California
-6%
-8%
-10%
-12%
14%
-14%
1Q1997
2Q1997
3Q1997
4Q1997
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
42
Source: OFHEO
US, Texas and Odessa Appreciation
4Q2007 HPI Percent Change Year over Year
Q g
4Q2007 HPI Percent Change Year over Year
24%
US average = 6.6%
22% Texas average = 4.7%
20%
18%
Odessa average = 6.4%
4Q2007:US = 0.8%, Texas = 5.2%, Odessa = 19.1%
Odessa
16%
14%
12%
10% US
8%
6%
4%
2% Texas
0%
-2%
-4%
6%
-6%
1Q1997
3Q1997
1Q1998
3Q1998
1Q1999
3Q1999
1Q2000
3Q2000
1Q2001
3Q2001
1Q2002
3Q2002
1Q2003
3Q2003
1Q2004
3Q2004
1Q2005
3Q2005
1Q2006
3Q2006
1Q2007
3Q2007
43
Source: OFHEO
US, Texas and Midland Appreciation
4Q2007 HPI Percent Change Year over Year
Q g
4Q2007 HPI Percent Change Year over Year
24%
US average = 6.6%
22% Texas average = 4.7%
20%
18%
Midland average = 6.4%
4Q2007:US = 0.8%, Texas = 5.2%, Midland = 12.3%
Midland
16%
14%
12%
10% US
8%
6%
4%
2% Texas
0%
-2%
-4%
6%
-6%
1Q1997
3Q1997
1Q1998
3Q1998
1Q1999
3Q1999
1Q2000
3Q2000
1Q2001
3Q2001
1Q2002
3Q2002
1Q2003
3Q2003
1Q2004
3Q2004
1Q2005
3Q2005
1Q2006
3Q2006
1Q2007
3Q2007
44
Source: OFHEO
Texas Median Home Prices
$170 000
$170,000
2007 Trend
Median Home Price of $159,000 by 2010 equals a 7.8% 159,000
$160,000 154,500
increase over 2007.
150,000
$150,000 Annual average increase of 4.4% 1990‐2007; 147,500
143,100
$140,000 Annual increases of 1.7% in 2008 and 3% in 2009 and 2010. 136,800
130,100
$130,000 124,500
127,700
119,400
$120 000
$120,000
2007 trend line 112,100
$110,000
100,900
$100,000 96,200
90,600
$90,000 86,400
81,600
80,000
78,200
$80,000 75,200
71,200
68,500 68 100
68,100
$70,000
$70 000
$60,000
$50,000
2008p
p
2009p
p
p
2010p
1989
9
1990
0
1991
1992
2
1993
3
4
1994
1995
5
1996
6
7
1997
1998
8
1999
9
0
2000
2001
2002
2
2003
3
2004
4
2005
5
2006
6
2007
7
45
Source: Real Estate Center at Texas A&M University
Texas Median Home Prices
2003 Trend
$160,000
$160 000 154,585
Median Home Price of $154,600 by 2010 equals a 150,118
$150,000 147,500 145,650
4.8% increase over 2007. 143,100
$140,000 Annual average increase of 4.4% 1990‐2007; 136,800
Annual increases of ‐1.3% in 2008 and 3% in 2009 130,100
$130,000 127,700
and 2010. 124,500
119,400
$120,000
112,100
$110,000
100,900
$100,000 2003 trend line 96,200
90,600
$90,000
$90 000 86,400
81,600
80,000
$80,000 75,200
78,200
71,200
68,500 68,100
$70,000
$60,000
$50,000
p
2008p
2009p
p
2010p
p
1989
9
1990
0
1991
1992
2
3
1993
4
1994
1995
5
1996
6
7
1997
1998
8
1999
9
0
2000
2001
2002
2
2003
3
2004
4
2005
5
2006
6
2007
7
Source: Real Estate Center at Texas A&M University
Odessa-
Odessa-Midland Average and Median Home Prices
12-
12-Month Moving Average
$180,000
$170,000 165,275
Between 2000 and 2007 the
$ ,
$160,000
Median home price increased
Median home price increased
$150,000
103.1% and the Average price 143,300
$140,000
$130 000
$130,000
increased 97.1%
increased 97.1%
$120,000
$110,000
Average
$100,000
$90,000 83,330
$80 000
$80,000
69,460 Median
$70,000
$60,000
0
Jan-00
Jul-00
0
Jan-01
1
Jul-01
1
Jan-02
2
2
Jul-02
Jan-03
3
Jul-03
3
Jan-04
4
4
Jul-04
Jan-05
5
Jul-05
5
Jan-06
6
6
Jul-06
Jan-07
7
Jul-07
7
Jan-08
8
Source: Real Estate Center at Texas A&M University
al
Percent of Tota Sales
10
12
14
16
0
2
4
6
8
9
$29,999 or less
30,000 - 39,999
40,000 - 49,999
50,000 - 59,999
60,000 - 69,999
70,000 - 79,999
80,000 - 89,999
90,000 - 99,999
1997
100,000 - 119,999
Price
120,000 - 139,999
140,000 - 159,999
2007
160,000 - 179,999
Source: Real Estate Center at Texas A&M
180,000 - 199,999
200,000 - 249,999
250,000 - 299,999
300,000 - 399,999
400,000 - 499,999
1997 and 2007 Odessa‐Midland Home Sales by
1997 and 2007 Odessa‐Midland Home Sales by
000
500,0 and
m
more
,
4,000
5,000
6 000
6,000
7,000
8,000
9,000
10,000
11 000
11,000
12,000
13,000
14,000
15,000
Jan-95
Apr-95
Jul-95
Oct-95
Jan-96
Apr-96
Jul-96
Oct-96
Jan-97
Apr-97
Jul-97
Oct-97
Jan-98
Apr-98
12-
Jul-98
Oct-98
2008 YTD down 35%
Jan-99
Apr-99
Jul-99
Oct-99
Jan-00
Apr-00
Jul-00
Oct-00
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
2003 Trend line has very tight fit with actual.
Apr-03
Jul-03
Oct-03
12-Month Moving Average
Jan-04
A construction “bubble” from 2004 to mid-2006.
Apr-04
Jul-04
Oct-04
Jan-05
Source: US Census Bureau, Real Estate Center at Texas A&M
Apr-05
Texas SF Permits
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
49
Oct-07
Jan-08
Texas SFD Building Permits
180,000
New home construction will be down 166,203
163,032
160,000
at least 10%, back to 1998‐2000 levels,
, , 151,384
140,000 or lower 137,493
‐31.3%
122,913
120,000 111 915
111,915
,
112,040
108,613
‐10%
101,848
99,831 101,000
100,000
83,103 82,180
80 000
80,000
70,355 70,418
62,672
60,000 54,798
41,654
41 654
38,141
40,000
20,000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p
50
Source: U.S. Census Bureau, Real Estate Center at Texas A&M University
Odessa- Single-
Odessa-Midland MSA Single-Family
Building Permits
2,500
2,183
y
SF Permits essentially flat in 2007.
2,000 1Q2008 permits up 25%
1,646
y yp ;
Only 532 multi‐family permits issued since 2000; 224 in 2007
1,500
1,000
842
731 729
539
483
500 450 441
377 350 358
390 391
355
433
328
284 290
246 242 261 262 253
216 228 219
189
0
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Census Bureau, Real Estate Center at Texas A&M University
Population Growth
2007-
US Population Growth 2007-2012
53
Source: Global Insight, Inc.
2000 – 2007 States with
Population Increases > 1 million
Number Percent
Texas 3,052,581 14.6%
California
C lif i 2 681 560
2,681,560 7.9%
7 9%
Florida 2,268,419 14.2%
Georgia 1,357,934 16.6%
Arizona 1 208 140
1,208,140 23 5%
23.5%
North Carolina 1,014,541 12.6%
Source: U.S. Census Bureau
Table 2. Cumulative Estimates of the Components of Population Change for the United States, Regions, States and Puerto Rico:
April 1, 2000 to July 1, 2007 (NST‐EST 2007‐02), December 27, 2007
2000-
Top 18 Growth MSAs 2000-2007
1,100,000
1 100 000
1,000,000
900,000
800,000
700,000
600,000
600 000
996,463
947,907
900,276
887,678
500,000
803,100
400,000
8
300,000
484,631
472,112
459,482
442,901
405,515
385,489
375,572
332,315
319,492
311,341
200,000
282,427
71,266
70,712
00,000
100,000
27
27
3
3
0
55
Source: U.S. Census Bureau
Projected Texas Population
(000s)
45 000
45,000
2000 - 2030
At 50% 1990-2000 rate of immigration
At 2000-2004 rate of immigration 41,118
40,000 At 100% 1990-2000 rate of immigration
36,682
36,333
Between 9 and 18 million more
35,000
residents between 2005 and 2030
residents between 2005 and 2030 32,737
33,158
33 158
31,831
30,253
29,897
30,000 29,214
28,006
27,581
26,059 26,157
25,106
25,000 23,904
24,331
22,929
20,952
20,000
15,000
2000
2001
2002
2003
2004
2005
2006
2007
...
2010
2010
2010
2015
2015
2015
2020
2020
2020
2025
2025
2025
2030
2030
2030
56
Source: U.S. Census Bureau, Texas State Demographer
Percent Anglo and Hispanic Reverse by
2030
60%
Anglo Black Hispanic Other
1%
50%
51.3%
%
53.1
49.5%
48.2%
45.9%
45.1%
2.4%
40%
1.9%
42
%
39.0%
41
38.6%
35.7%
35.3%
32.5%
30%
32.0%
20%
10%
11.6%
11.4%
11.2%
10.8%
10.5%
10.0%
9.5%
6.7%
6.1%
3.3%
3.8%
4.3%
4.9%
5.4%
0%
2000 2005 2010 2015 2020 2025 2030
Source: Texas State Data Center and Demographer, Average of Projections 57
Odessa-
Odessa-Midland Population
300,000
294,037 292,973
290,000 Historically, young people left the 287,912
280,000
area for jobs in major MSAs
270,000
260,000 255,978
250,000 245,150
240,000
234,644
230,000
220,000
210,000
200,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010
2010
2010
2015
2015
2015
2020
2020
2020
2025
2025
2025
2030
2030
2030
58
Source: US Census Bureau, Texas State Data Center and Demographer, 50%, 100% and 2000-2004 immigration scenarios , respectively
p
What to Expect
• Energy industry continued strong for next
growth,
year or so with slower job growth but …
• Rapid home value increases due to
supply,
constrained supply still very high but
slowing down
• 2008-2009: good economic growth, job
gains not as great as past several years,
strong housing market demand
59
2008 Economic and Housing
Outlook
May 20, 2008
Dr. James P. Gaines
Research Economist
Real Estate Center
Real Estate Center
at Texas A&M University