Texas Builder, May/June 2016

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Feature
Texas Loses Energy
According to Gaines, the price of oil has
been in decline since the summer of 2014.
Prior to that, the price of oil was over $100
a barrel. It is now running in the mid
$30s. Along with that, there has been a
75 percent drop in new well drilling and
mining activity. “Texas’ entire economy
is not tied to energy,” said Gaines, “but
about 10 percent at the statewide level is
tied to the energy industry, and the energy
industry is very complex.” On one end of
the spectrum, there is upstream drilling
and exploration; on the other end, there
is downstream refining and petrochemical
products delivery. The downstream fares
well with the lower price of oil because
the price of crude is their input price, but
the downstream is so capital intensive, it
doesn’t actually create jobs. Overall, the
energy sector in the state has declined, and
it has caused the entire state to decline
along with it.
“We are beginning to see how this is flowing
through the state economy,” said Gaines.
“Booms and busts in the energy sector
generally take about one to three years to
play out through the whole economy, and
we’re roughly about a year into it.” The
Dallas Federal Reserve puts out the Texas
Leading Index. The findings show the state’s
economy has been trending downward for
over a year, and the growth rate has slowed
considerably. But what does all this mean
for the housing industry?
Dr. Jim Gaines is chief economist with the Real Estate Center at
Texas A&M University. “Texas was in a boom condition for the
past five years,” said Gaines. “The energy sector had exploded
with the fracking industry, but that has now fallen off, and the
boom is over.” Fortunately, the national economy is no longer in
a recession. Gaines believes the current health of the country’s
economy is the most important factor keeping Texas from going
into a severe downturn. To understand how this affects the
housing industry in Texas, the state’s overall economic outlook
needs to be assessed.
By Chad Andycha
Home Sales Hold Steady (For Now)
“I’ve been preaching that there’s going to be
a slowdown, but it sure hasn’t happened
yet,” said Gaines. Texas has been the leading
state for new home starts by a fair margin.
Dallas and Houston, independently, have
both had faster housing starts than most
states. Houston has been the number one
market for the last few years, and Dallas
could soon take over. Of the major states,
Texas has been leading with its pace of sales
and median home prices with a good rate of
increase. “2015 was a record year for home
sales, and early 2016 sales are up almost 7.5
percent,” said Gaines. “The median price
is up about 5.5 percent, but that’s a much
slower rate than we’ve had the last couple
years. At the state level, we’ve been hovering
near 8 to 9 percent. The increase is still going
on, but the rate of increase has slowed down.”
In Texas, as well as nationally, there is a
spread occurring in the new home market
by price distribution. “What we’re seeing
is that it’s almost impossible to build new
stick-built homes for much under $200,000.
The home builders in Dallas-Fort Worth
say it’s even hard to do for under $300,000,”
said Gaines. Land, labor, and material
costs have increased to the point where the
state’s home building industry is having a
difficult time responding to the entry-level
the BLOOM
is OFF the BOOM