I spent the morning at Ted Jones’s economic forecast for 2015. Ted is an economist with Stewart Title.
The title of today’s forecast was – “No Place But Up”, meaning interest rates, rents, prices, real estate and the economy.
Current positives -
- We have more jobs than any other time in history.
- 58% of new jobs pay more than ever before.
- Interest are currently highly affordable all while having significant demographic demand.
We are going to see the biggest retail boom this country has ever seen because the demographics from people still moving into the country is continuing to grow.
All of a sudden millennials are starting to get good jobs. Entry level home buyers are returning.
Inflation is going to occur, but typically real estate outperforms inflation.
We should have cheap oil for a while.
Election = change – Don’t count on it. Nothing is going to change with the election.
US Jobs – $257,000 jobs in January. We added more jobs than any other time since 1999.
- If you looked at the average number of jobs per month, it was 246,000. In 2006 we created 216,000 per month.
These headlines were largely ignored by the media. Ted emphasizes that we are in a fantastic economy right now, especially here in Texas and in Austin.
Texas Jobs – The nation grew 2.15% and Texas grew 4.04%. We added 457,900 new jobs. This will go down some as we lose oil and gas jobs. Most of the jobs we have already lost in the oil industry – or will lose – are lost on the rigs.
As far as states ranked with the most competitive tax systems, we rank #10 in the country currently. If we were to remove the self-employment franchise tax, we’d move to number 3.
Austin/Round Rock had 2.85% job growth in the past 12 months. One reason we do so well is that during the downturns, we don’t go down so much. It’s not a bad thing that we haven’t kept up with the state rate of 4.04% job growth.
Commercial real estate – we had a bigger bubble in commercial than we did in housing. Last year we were up 10%.
Retail had a 14% return, followed by 12.8% in industrial, apartments at 9.92%.
It is predicted that apartments may not be as profitable in the future due to the mass building of apartments coming up.
The appreciation moving forward is going to occur in the lower quartile of price ranges. In 2014 the lower quartile went up 10.2% compared to 3.2% of the higher quartile of home prices.
New home sales – Several problems on this front
- We ran out of lots and the new lots cost so much more to build.
- It takes our municipalities too long to get permits approved.
- Construction costs are have skyrocketed.
Austin housing market. We currently have 2.2% of inventory. 6% is considered “normal”.
We are now selling more homes than when we had the sub prime loans during the last boom, but this is not considered a bubble. This may be the “new normal”.
The median home price in Austin is up 8.6% in the last 12 years.
In 2010 the the population for MSA (the greater Austin area) was 1,716,289. 2015 is 1,990,437. By 2020 we will reach 2,306,857.
The median household income is $63,149 and the median home is $240,875, which is a slightly high ratio. If we gain popularity as the new tech center, this ratio is going to get worse.
We have more money sitting in bank accounts earning zero percent or in our pockets than anytime in history.
2.08% is the 10 year treasury rate currently. While the US is doing quite well, the rest of the world is not. This is up from 1.68% from just a week ago, which brings us to the mortgage rates.
Expect 5.6 to 6% in the next 12 months on 30 year rate mortgage.
Consumers have cleaned up their balance sheet and are carrying less debt than ever before and they are about to start spending. Ted expects to have the biggest retail boom ever seen coming in the next 12 months.
We have the oldest fleet of cars on the road since WW2.
The forecast for oil is $60 by October. We are going to see the biggest jump in tourism in a decade because it’s cheaper to travel.
The Eagleford shale is still going to do well because it’s set for making plastic. We will be the largest manufacturer of plastic in the world and will export it globally. We are now building more Caterpillars in Florida than Japan. We are seeing the same thing with Toyota, BMW and Mercedes Benz. There are several manufacturing plants of plastic being built throughout Texas and Louisiana.
Very positive outlook for Central Texas over the next 12 months. The take-aways as I saw were:
- Our traffic problem is not getting any better.
- Affordable housing is getting scarce.
- The $500,000 and up price range will start to appreciate at a slower rate, while the $300,000 and below will continue to appreciate at a steady rate.
- Our income, by and large, will not keep up with the home prices, especially for first time buyers.
- There will be some sort of saturation of apartment complexes, making the returns lower, though I believe that will happen more in the outer areas.