The Greater Houston Partnership’s Patrick Jankowski the Senior VP of Research recently discussed Houston’s economic outlook. The gems of knowledge he shared offer some insight into inflation, housing and future forecasts.
Mr. Jankowski proposed the three combined $6.4 Trillion Covid economic stimulus packages were two more than we needed especially when considering the US spent $5.4 trillion on WWII (adjusted for inflation). The expenditures for Covid relief did help families during the Covid lockdown but at the same time ignited spending and drove inflation to the forefront.
Global political unrest and the current war in Ukraine limits what we buy from Russia. This in turn drives up the cost for many items in the supply chain such as corn, wheat, fertilizer, oil and metal. Many of the staples as a nation that we import from other countries.
We’ve all heard that supply chain shortages delayed many items we consume daily. I’m willing to bet you have driven by a car dealership and have seen first hand the chip shortage effects on inventory in the auto industry. Yet at the same time we hear the news of high profits for oil and gas companies and other industries.
So, is it corporate greed or are supply chain shortages causing pain for US corporations as well? Jankowski suggested the data shows corporations are spending more to manufacture their goods and having to pay more money for their employee’s salaries to keep business running. The million-dollar question remains, what’s the cure for higher prices? Answer, It’s higher prices. One theory is by making things more expensive will in turn lower demand. Anything bought on time (cars, buildings, hospitals, homes) via loans and interest rates has become more expensive.
Eight out of the last 9 Federal Reserve meetings have resulted in an increase to interest rates. They’re trying to get the soft landing done right. Currently interest rates for a 30-year fixed rate mortgage are between 6.1-6.2% on average. Those families that bought homes while rates we’re at historical lows in the last 3 years are realizing the effect the current rates have on their proposed monthly mortgage payments when considering a new home purchase, relocation, or simply budgeting for a change.
Big banks are setting money aside money due to concerns for loan defaults. Consumers are saving less to keep up their standard of living and spending more. When people buy a home, they tend to buy new furniture. We like new to go along with new and that effects the supply chain. Jankowski proposed that Houston’s economy is the healthiest he has seen it in the last 40 years.
The Houston purchasing managers index says we’re still expanding the local economy and 64% of oil and gas companies expect to see expansion in 2023. Houston is one of the top 5 largest shipping ports in the country and shipping container business is expanding still in 2023.
Interest rates are what is keeping home sales down. Keep in mind that since WWII there has been 12 recessions followed by 12 recoveries. A recession isn’t the end of the world and we will recover and carry on.
Analysts propose the following:
- 50% chance we have a mild recession - 30% chance wee have a near miss - 20% chance we have something deeper Diving deeper to the numbers above they also propose: - Mild Recession still generates 50,000 new jobs - Near Miss generates 80,000 new jobs - Something deeper still sees 30,000 new jobs in Houston
In conclusion the outlook for the Houston employment market appears to be positive. The expectation of at least 30,000 new jobs locally even in the worst-case scenario should calm woes as well. Personally I enjoyed Jankowski’s speech and look forward to hearing more from him in the future. Always keep in mind when reading news on the housing industry that local news is different from countrywide. Not all markets reacted the same as Houston, and those that had the most explosive growth are also seeing some of the largest downturns in home pricing and equity loss. Houston still has a very positive outlook and we’re excited for days to come.