Economic Indicators & Average Rent/Occupancy Texas: DFW Houston – San Antonio

BY COOKE MULTIFAMILY TEAM

Economic Indicators & Average Rent/Occupancy

Texas: DFW Houston – San Antonio

As, Elliott Pollack, a renowned economist, so eloquently stated in his ‘The Monday Morning Quarterback,’ 4/6/2020 post: You shouldn’t be concerned with how bad things look right now. Current events are like nothing in modern history. The unprecedented slide in the economy has nothing to do with normal economic cycles. It is due to a reaction to COVID-19 that will be transitory. In addition, the CARES Act just passed by Congress is not a stimulus package.

It is a disaster relief package. It is specifically designed to get income primarily to those whose income has been cut due to COVID-19 and its fallout (although every adult American with an income of less than $99,000 will get some cash). Though not perfect, it is a well-designed program that should keep cash flowing to those who lost their income source.

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Texas Population First the good news from Census. Six of the 10 counties with the largest population gains this decade were in Texas — Harris (Houston), Tarrant (Fort Worth), Bexar (San Antonio), Dallas (Dallas), Collin (portion-Dallas/Plano), and Travis (Austin) — according to the U.S. Census Bureau’s July 1, 2019, population estimates.

Three of top ten metro areas with the largest gains in population between 2010 and 2019 were in Texas. Dallas-Fort Worth-Arlington, TX, had the largest numeric growth, with its population increasing by 1,206,599 (19.0%), followed by Houston-The Woodlands-Sugar Land, TX, increasing by 1,145,654 (19.4%), and Austin-Round Rock-Georgetown, TX, up by 510,760 (29.8%).

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Texas – Economic Indicators The Texas economy contracted in March with payrolls declining and unemployment increasing due to the coronavirus (COVID-19) pandemic. Texas employment fell an annualized -4.7 percent in March following upwardly revised growth of 3.9 percent in February. This was the first time that payrolls weakened since mid-2017. Most industries lost jobs in March, especially leisure and hospitality, which contracted an annualized -19.5 percent. The government, financial activities and other services sectors grew in the month.

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The Texas Leading Index is a single summary statistic that sheds light on the future of the state’s economy. The index is a composite of eight leading indicators—those that tend to change direction before the overall economy. They include the Texas value of the dollar, U.S. leading index, real oil price, well permits, initial claims for unemployment insurance, Texas stock index, help-wanted index and average weekly hours worked in manufacturing. After increasing slightly in January, the index fell in February and March, -1.0 percent and -11.8 percent, respectively. While the drop in March is the steepest monthly decline ever recorded since the series began in 1981, it is still hovering above the Great Financial Recession’s (GFC) low of 100.5

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Dallas-Fort Worth The Dallas–Fort Worth (DFW) economy contracted in March with payroll employment posting its largest drop since the series began in 1990. DFW employment fell an annualized -9.3 percent in March following a 2.8 percent increase in the first two months of the year. This was the first time since early 2018 that payrolls weakened.

Payrolls contracted -5.3 percent in Dallas and -18.4 percent in Fort Worth—the largest drop among Texas metros. Declines in March erased gains made earlier, sending DFW employment down -1.4 percent in the first quarter. Job declines were broad based, with only employment in government expanding in March. Employment in the goodsproducing sector fell an annualized -5.3 percent, in the service sector payrolls fell -9.9 percent. Declines in education and health services, leisure and hospitality and other services employment led the service sector contraction. Loses were less pronounced in DFW Metro’s largest employment sector – trade, transportation and utilities – as well as financial activities and information.

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The Dallas and Fort Worth business-cycle indexes dipped in March, driven by widespread job losses and rising unemployment in the metroplex. The Dallas index saw a modest drop of -1.4 percent (annualized), while the contraction in the Fort Worth index was -15.5 percent (annualized). Over-the-year, the Dallas index rose 4.8 percent and the Fort Worth index was up 2.2 percent.

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Houston Data for March in Houston shows that employment contracted, the business-cycle index slowed with leading indicators negative and the unemployment rate rising. Weekly initial claims for unemployment insurance in April remained elevated. Initial estimates for the February-to-March change in employment (based on a survey for the pay period that includes the 12th day of the month) show a -3.6 percent annualized decline in total employment (-9,800 jobs), the sharpest one-month decline since August 2009. Declines were led by leisure and hospitality (-5,300), construction (-4,800) and manufacturing (-3,600). Job gains were led by other services (2,000; includes various services such as auto mechanics, dry cleaners and animal boarding). While the initial estimate for mining and logging jobs (almost entirely oil and gas) saw an increase of 1,200, the impacts of both Covid and the oil war are not factored and will show up in the data until mid-May releases.

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The Houston Business-Cycle Index slowed to a growth rate of 2.0 percent over the three months ending in March 2020. It is expected that the index will likely be revised downward when wage and retail sales data—available with a lag—are incorporated. Leading indicators declined by -9.1 percent over the three months ending in March which is the deepest three-month decline since March 2009 and suggests that job growth over the next several months will likely contract.

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San Antonio The San Antonio Business-Cycle Index declined for the first time since November 2009. The sectors with the largest contractions were manufacturing (-5.7 percent), health & education services (-3.9 percent) and trade, transportation & utilities (-3.5 percent). Nonetheless, professional & business services, other services, mining, information and government all increased at 3.3 percent, 2.0 percent, 1.6 percent, 0.9 percent and 0.5 percent respectively.

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The San Antonio Business-Cycle Index contracted at -0.6 percent annualized in March, well below the long-term average of 3.5 percent.

Energy Sector Call Out West Texas intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. Although off its $12.78 low, currently trading at $19.69, the chart below shows the base cost of well operations which are the base oil prices needed to maintain operations ranges from $23 to $36, at $19.69 all wells continue to operate at a loss.

Average Rent DFW was the only MSA, of the three, to post both y/y (3.9%) and q/q (0.5%) increases to reach a high of $1,241. Houston increased 1.2% y/y to $1,140 (down -0.6% q/q) and San Antonio increased 1.7% y/y to $1,057 (down -1.4% q/q).

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Average Occupancy All three MSA saw 20-40bps contractions in occupancy with Houston resting at 92.4%, San Antonio at 92.6% and DFW at 93.8%

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Unemployment Claims In regards to unemployment claims as a % of the civilian workforce Texas is near the bottom at #43 with 8.6% with both Florida and Idaho lower at #41 at 8.8% and Colorado at #44 with 8.4% (helpful to note that the higher the rank the less percentage claims there have been).

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How many weeks of unemployment benefits can each state fund? Texas is in the bottom 10, at #43, and can only fund 2 weeks of unemployment benefits. Top 10 states and number of weeks follow:

• #1 Wyoming (49 weeks) • #2 Alaska (31 weeks) • #3 Oregon (30 weeks) • #4 Utah (27 weeks) • #5 (tie) Idaho (26 weeks) • #5 (tie) Mississippi (26 weeks) • #7 Arkansas (25 weeks) • #8 North Carolina (22 weeks) • #9 Arizona (21 weeks) • #10 Florida (18 weeks) • #43 Texas (2 weeks)

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Outlook At this point, Covid-19’s potential impact on both the real estate industry, and market overall, remains to be seen. While we may not have firm data as to the full extent of this disruption, make no mistake that its impact will be significant, as witnessed in the 30M+ national unemployment claims, although not expected to be long term. The biggest impacts observed thus far, aside from unemployment claims, have been relegated to Capital Markets and Retail. With regards to Capital Markets lenders have been widening spreads which has, in turn, impacted interest rates. The near-term interest rate spread increase can, and should, be attributed to the volatility of the virus’ spread and government steps to contain it. Nonetheless, the Federal Reserve has continued to provide the market necessary liquidity which bodes well for real estate.

While near-term rent delinquencies can be a cause for concern, particularly of Renter by Necessity properties, they have yet to fully materialize. Lenders such as Fannie and Freddie have instituted forbearance options to not only provide varying degrees of mortgage relief but also halt evictions. This is in addition to various state/county/municipal authorities who also have instituted moratoriums on evictions. Lastly, under the CARES Act, not only will many receive a one-time $1,200 stimulus check + $500 per child, contingent upon income, but for those unemployed will see an additional $600 per week added to their unemployment checks through July 31, 2020. For Texas, the maximum benefit amount is $521 per week + $600 per week (CARES Act funding) = $4,484 per month (see a per metro comparison on the next page): Despite significant near-term volatility, there are a few bright spots beginning to emerge: one, preliminary results of various blood antibody tests have shown that a much larger population has been exposed to Covid than previously thought and, as a result, suggests that mortality rates are many factors lower than first projected. Secondly, various states (including Texas), in conjunction with the Federal Government, have started the process of re-emergence from the crisis. While it is much too soon to celebrate, we are, in the least, acquiring more accurate information which, in turn, leads to better decisions and those are the necessary prerequisites on the path towards recovery.

THOMAS BROPHY

TERESA LOWERY

Research Director +1 602 222 5066 thomas.brophy@colliers.com

Senior Managing Director +1 713 830 2142 teresa.lowery@colliers.com

CINDY COOKE

RON CAMERON

Senior Executive Vice President +1 602 222 5039 cindy.cooke@colliers.com

Senior Vice President +1 404 877 9287 ron.cameron@colliers.com

BRAD COOKE

MATT ROACH

Executive Vice President +1 602 222 5088 brad.cooke@colliers.com

Associate Vice President +1 602 222 5143 matt.roach@colliers.com

CHRIS ROACH Associate Vice President +1 602 222 5144 chris.roach@colliers.com

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