Texas Housing Flies High, U.S.
Fastens Seat Belt
News Release No. 1, November 2006
By David S. Jones
COLLEGE STATION, Tex. – Remember that “soft
landing” economists were predicting for the national housing market? Now,
they have turned on the “fasten seat belt” light.
National analysts foresee an 11.5 percent
decline in housing starts this year and another 11.7 percent drop in 2007.
U.S. housing should hit bottom by the middle of next year. Once the bulwark
of the national economy, housing is now seen as a major source of weakness.
The Texas housing market, however, continues
to fly high. The state’s population has soared by two million so far this
decade. Home inventory remains low, and prices continue to appreciate.
Some speculative money has made its way to
Texas, but much less than in Florida, Nevada and California, says Real
Estate Center Chief Economist Mark Dotzour.
Despite the smooth flight Texans currently
enjoy, Dotzour sees two blips on the radar screen that might spell trouble
“At this time, the most significant risk to
the Texas housing markets is the possibility of large-volume builders
attempting to make up for lost volume in East and West Coast markets by
increasing volume in Texas cities,” says Dotzour. But he added, “I’m hopeful
that will not happen.”
The second is one the entire U.S. housing
market faces — a recession in 2007.
Dotzour is concerned because the United
States has had a flat or inverted yield curve for nine months. This
artificial situation occurs when short-term interest rates are higher than
“It almost always causes a recession within
12 to 18 months,” says Dotzour.
The Center’s chief economist says the
declining ten-year treasury rate and home mortgages indicate that bond
investors are convinced the 5.25 percent Fed funds rate is high enough to
slow things down considerably.
“I don’t expect any movement on interest
rates between now and the end of the year,” he said. “The Fed doesn’t like
to take action before elections. But I think it’s highly likely that every
day the yield curve stays inverted as it is now, brings us another day
closer to a national recession.”
A real estate agent from Austin asks Dotzour
how one goes about recession-proofing a real estate business and personal
“The good news is that even though the United
States could have a recession, it’s highly possible that Texas won’t
participate in it,” Dotzour says. “The Texas economy is not overheated in
the housing market, and we don’t have a lot of ailing auto plants in our
“When an economic cycle is near the top, the
best plan for businesses is to not take on a lot of new debt. If revenues
start to flatten out,” he says, “the people that can continue to meet their
debt obligations will be around for the next cycle.”