Whither Texas: Boom or Bust or Both?

“The only word to describe the Dallas housing market is ‘frenzy.’”

At Houston auto dealers, new vehicle sales in June plunged 22% from a year ago, with new truck sales down 18% and new car sales down 29%, according to TexAuto Facts via Greater Houston Partnership. It’s not a blip: Year-to-date new vehicles sales dropped 19%, with trucks down 13% and cars down 27%.

Those are scary numbers for car dealers. They’re highly leveraged, and a sudden, prolonged plunge like this is causing a lot of gnashing of teeth.

Houston’s total retail sales, including auto sales, dropped 9.8% in June and 10.3% year-to-date.

The Houston Purchasing Managers Index for June plunged 6.4% from the already crummy level a year ago, to 43.7. Below 50 = contraction.

In the construction sector, total building contracts plunged 32% in May and 23% for the first five months. Nonresidential contracts plummeted 55% in May and 23% for the first five months. Residential contracts fell 10% in May and 22% for the first five months.

Homes sales – still hanging on by the skin of their teeth – inched down 0.9% in June, according to Multiple Listing Services (MLS). The median price inched up 2.5%. But active listings jumped 14%, and pressures are building.

The office space sector is in serious trouble, as we reported Friday… It Starts: First Mega-Foreclosure Hits Houston Office Market

Employment in the Houston-Sugar Land-Baytown area edged up in June by 0.2% from a year ago. Service sector employment rose 1.5% to 2,465,100. But in the goods-producing sector, which includes oil and gas, employment fell 5.7% to 533,600. The unemployment rate rose to 5.5%.

Foreign trade, which includes oil and petrochemicals, plunged 27% in May from a year ago, and 27% over the five months, with exports down 21% and imports down 34%.

The Port of Houston reported that shipments, measured in short tons, dropped 14% in May from a year ago, and were down 11% year-to-date.

Airfreight into and out of Houston plunged 22% in May and 19% year-to-date.

These are not exactly the data points of a raging boom town but the profile of an economy broadsided by the Great American Oil Bust.

But Houston isn’t Texas. While some smaller cities are getting hit hard too, others are not. And Dallas – more generally North Texas – is booming, still, with housing going decidedly nuts. D Magazine, which covers the Dallas area, offers this cover on its latest issue:


And this cover story:


The article starts out nicely tongue in cheek:

Great news, everybody. The white-hot Dallas-area real estate market is even hotter than ever. Again!

David in Texas explained the phenomenon in an email:

“From what I saw driving around last week, the only word to describe the Dallas-Fort Worth real estate market now is ‘frenzy.’”

David mentioned some of the companies that are moving to North Texas, including Toyota, which is transferring its North American headquarters to West Plano. And puzzled:

This would drive demand in certain locations but doesn’t really explain the area-wide mania for real estate. In the nicer, older parts of town, cottages are being scrapped and gigantic McMansions put up just as fast as contractors can assemble equipment and workers.

I have no idea what will bring it all crashing down. The oil bust has had zero impact on all this (even in nicer parts of Fort Worth, which is a lot closer to the Barnett Shale). So, I suppose the only thing to do is to scrape together a 3% down payment, take on as much debt as I possibly can, and buy the most expensive house I can, now, before being priced out forever.

OK, I’m going insane. But that strategy has worked for a lot of folks in Dallas lately, who now think that real estate is the only sure way to make money. I spent all weekend hearing this, and being chided for conservatism.

So the Dallas Fed struggles to stitch these disparate economic patches into some sort of coherent image for Texas in its latest Dallas Beige Book. The word “mixed” – not an ironclad compliment in Fed-speak – showed up repeatedly. Some tidbits:

Labor Market:

Employment levels declined in the manufacturing sector, and energy service firms continued to trim payrolls. Retail employment was flat, with scattered reports of hiring. Reports of hiring were more prevalent across the service sector….

Note: the official unemployment rate in Texas rose to 4.8% (from 4.2% a year earlier).


The manufacturing sector contracted over the reporting period, with contacts citing headwinds from uncertainty in global markets, slow global growth, and low oil prices.

Construction-related manufacturers saw stable demand, with a few contacts noting dips in activity due to recent rains. Dallas continued to outperform other large Texas metros, while construction backlogs in Houston were drying up.

New orders declined in food, machinery, primary metals, and transportation equipment manufacturing, and there was little to no growth in high-tech manufacturing. Overall demand for fabricated metals fell over the reporting period but a few manufacturers noted an uptick in bookings.

Retail Sales:

Softness was attributed to sluggish sales along the Texas/Mexico border, slow economic growth in Texas, and continued conservative spending on apparel…. Sales this year are expected to be below 2015 levels….

Auto sales held steady and were in line with year-ago levels.

Nonfinancial Services:

Overall demand for nonfinancial services expanded over the past six weeks.

While a number of sub-sectors in nonfinancial services increased their employment….

Demand for engineers softened and there were layoffs in the steel industry. The Dallas area continued to be the strongest market.

Legal sector activity grew at a slower rate as litigation work was largely mixed, but transactions work increased. Energy-related legal work ticked upward due to higher demand for bankruptcy and corporate restructuring.

Chemical plant expansion along the Gulf Coast boosted truck cargo volumes, while declines in courier and air cargo were reported. Overall rail cargo dipped as well; however, grain shipments rose strongly…. Airline passenger demand was … slightly lower than a year ago.

Construction and Real Estate:

Home sales rose during the reporting period. Sales continued to be characterized as good in Austin and Dallas-Fort Worth, and steady to down in Houston. Sales of entry-level and first-move-up homes continued to be strong, while a few contacts noted weakness at the very high end of the market.

Homebuilding was active, although some delays were reported due to recent rains. Builders in Houston were contracting for fewer lots and there was some softness in lot pricing in Houston.

Overall, apartment demand was strong. Rent growth was brisk in Austin and Dallas-Fort Worth and steady in San Antonio. Multifamily construction ramped up in Dallas-Fort Worth. In Houston, new apartment deliveries were putting pressure on rents and one contact noted negative rent growth.

Oh my, negative rent growth!

Demand for office space was healthy in Dallas-Fort Worth, but dampened further in Houston where sublease space continued to spike, putting pressure on office rents.

Financial Services:

Loan growth softened over the past six weeks. Commercial and industrial loan growth fell, and commercial real estate loan growth appears to have finally plateaued. Residential lending continued to expand at an anemic rate, excluding refinancing and home equity loans. Consumer loan growth remained steady, particularly due to strong auto lending.

Contacts cited heightened uncertainty in their outlooks following the Brexit vote, and were more pessimistic than in the previous reporting period.


Demand for oilfield services remained depressed even as overall business activity improved and the rig count ticked up over the reporting period. Defaults, bankruptcies and mergers and acquisitions continued to climb.

Firms were increasingly confident that oil prices have found a bottom and that market fundamentals will tighten in the second half of the year. However, firms would like to see these higher prices for a while longer before making any changes to existing business plans. Contacts say the worst is likely over, but there is little hope for substantial growth in activity or employment before 2017.

This is why the word “mixed” keeps showing up in the Beige Book. The large, diversified Texas economy – second largest in the US behind California – is feeling the crushing pain from the oil bust in some areas. And more generally, it’s feeling the duller pain from the global slowdown. But the housing boom in North Texas – the “area-wide mania,” as David calls it – and in other cities soothes some of these wounds. Housing booms are great panaceas, while they last.

But Houston, at the epicenter of the Great American Oil Bust, has had a nasty quarter. Read…  It Starts: First Mega-Foreclosure Hits Houston Office Market

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  29 comments for “Whither Texas: Boom or Bust or Both?

  1. chris Hauser says:

    i think chemicals and pipelines will do nicely.

    office space in houston? the phrase will elicit, more and more, a negative downtrodden depressed never going up again feeling. only issue is there’s too much of it.

  2. Mark says:

    Note: the official unemployment rate in Texas rose to 4.8% (from 4.2% a year earlier).

    Note: Total number of population in the state of Texas increased more than 0.6%, not counting illegal immigration.

    So it seams all is good.

    • Mick says:

      “Official” stats make me giggle. Like asking a drug dealer if cocaine is addictive. Pull EBT cards and child care benefits and you’ll see the real economy in a hurry.

  3. william says:

    Austin is still doing well (yet not great like 2000). A steady stream of new businesses and new people are arriving. The tech scene is diverse and IPO-friendly. Some softness is appearing which I believe is demographics driven like university and public school hiring is slowing or reversing. (Austin public school began advertising to get people to enroll their children. ahem.) But rents are still climbing and homeowners are celebrating their higher property values. New home and apartment building is steady (yet not like 2000). Plus, building height restrictions have been nixed, so new skyscrapers (mini-skyscrapers) with 20+ floors are increasingly popular downtown.

    • Wolf Richter says:

      Thanks for the info, William.

      I seem to remember, from back in the day when I lived in Austin, which was a long time ago, that buildings could not be taller than the Capitol.

      Am I confusing this with another city (such as DC)? What height restrictions did Austin have and are they now completely gone?

      • professor plumb says:

        Madison, Wisconsin had that rule. The State Capitol building dominated the skyline. Now there are exceptions granted, but everything requires extensive deliberations in Madison which rightfully so is trying to maintain the natural beauty of the Isthmus between Lake Mendota and Lake Monona.

      • william says:

        Theoretically, height restrictions are gone from designated areas of Austin but there are limitations based on floor space:land ratios, yet those limitations are still able to have exceptions granted. Views of the State Capital are somehow planned to be protected by a tricky system of endless corridors emanating from the capital in all directions with height restrictions. Austin has irreversibly changed. I’m buying property each year even as most residents say it’s too late.

    • Chicken says:

      Apparently without regard for the limited aquifer, from where are they stealing the balance?

  4. Mick says:

    All over the world, a housing bubble is being passed off for a real economy. It is not. Cheap, easy credit can create a housing bubble, but it cannot create a real economy.

    • Lee says:

      Hey Mick,

      We’d like some of that cheap, easy credit here in Australia.

      ARM’s are still around the 5% range and banks are now requiring 20% or more as down payments.

      Just think what the housing market would look like here if we had 2% loans!!!

      • nhz says:

        just imagine what the housing market looks like with sub-1% loans, no downpayment required (103% mortgages for standard), full deduction of mortgage and other homeowner expenses from income tax (making the monthly cost effectively 0.5%), extremely low taxes on real estate (but punishing taxes on e.g. savings accounts) and a free government-provided guarantee against losing money when you have to sell your home (for mortgages up to 275K)…

        what you get is the Dutch housing market, an epic housing bubble that has been growing for about 30 years now and is taking for granted almost everywhere despite some of the highest private debt in the world. It’s not as extreme as e.g. Sydney RE, but the trouble in Netherlands is that the bubble is all over the country and rents in the free market are sky high – no way to hide. You either have to pay punishing rents and hope sanity prevails in the end, or play the homeowner game and go all-in.

        Or put some shoe polish on your face, claim to be a migrant and get free housing and lots of other goodies for life ;-(

        In speculation hotspots like Amsterdam home prices are already far above the previous bubble top from 2008, and on average prices are rising at 5-10% yearly with inflation supposedly near zero. Over the last 20 years or so household incomes have increased 50-100% (mostly because of more dual earner households) but home prices have increased 500-2000%. Who needs job income (or a job …) when you can make more money by owning a home …

        • nhz says:

          I stated monthly cost of 0.5% (of home price) for homeowners but although the payment is monthly, of course the percentage is on a yearly basis …
          in the old days (1990 or so) when our housing bubble was still young the monthly cost was really 0.5-1% (mortgage rate around 12%, also with full income tax deduction).

        • Markar says:

          The Netherlands. Home of the tulip mania of the 17th century.
          History doesn’t repeat, but it certainly rhymes.

  5. Merlin says:

    I smell a rat that is too big to fail behind another subprime mortgage fiasco…..but nobody cares anymore. Have a nice day.

  6. Quantitative Easing’s inflation has materialized in the stock market and real estate market but incomes cannot support the rents and prices real estate has ballooned do. The real estate bubble will surely pop and when it does, you can bet there will be nothing anyone can do to reflate it.

    • frederick says:

      Absolutely true that it WILL pop The only question is how long they can keep it growing

    • nhz says:

      What makes you think this time is different?

      The Dutch Housing bubble started around 1990 and already popped twice (average price decline 10-20% and strong sales numbers decline in 2002 and 2008). But in both cases politicians and banksters managed to push it to new heights within some years with more easy money. The US housing bubble is only in its second inning, and they have managed to push it to new heights in some of the speculation hotspots, without the desperate policies the Dutch are using.

      The Dutch haven’t even tried negative mortgage rates yet (they do exist now but as proverbial exception to the rule), or increased taxation on renters to subsidize the many ‘stressed-out’ homeowners. Or free government put options for homes below 10 million euros instead of the current 275K – in the Dutch situation this government-guaranteed put sets a floor under home prices – basically for anything less you can only buy a POS home because everyone who can fog a mirror can afford these homes.

      Raising the mortgage guarantee ceiling will certainly quickly raise the average home price, incomes be damned. And it is a political decision only, not a financial decision that the banks have to take. There might be some quarreling with EU financial authorities for these state guarantees, but with the right political favors (e.g. the Dutch MH17 commission finding that Putin personally gave the order to shoot down the plane …) I’m sure the EU authorities will bless this policy.

      People have no idea what banksters and politicians will do to keep this bubble growing, their life depends on it – even literally by now, because there is so much at stake for millions of greedy or ‘entitled’ small speculators.

      • d'Cynic says:

        Have you tried 100- year mortgages, yet? With 100-year bond, it is a natural progression. Still a way to go down the ladder of self destruction of the most intelligent species, ever.

        • nhz says:

          We have 40 year mortgages now, given the average age of the average buyer that is already pretty ridiculous … and from what I understand the financial advantage (in monthly cost) of a 100 year instead of 40 year mortgage is really small in the current conditions. 30-year fixed rate used to be the norm over here years ago, currently the 10-year fixed rate seems to be preferred because it has the lowest monthly cost.

          Oh yes, I forgot to mention that the ECB is contemplating buying Dutch mortgage debt (probably just before they start accepting toilet paper as loan collateral) and the government has been trying for some time to force pension funds to invest in mortgage debt (innovation from Down Under?) but the funds are not biting without solid guarantees against loss for them, so nothing has been accomplished thus far. Will be interesting to see who guarantees the Dutch free homeowner put when the ECB starts buying into the Dutch bubble ;-(

  7. Chris from Dallas says:

    Having read WolfStreet for awhile now, I keep thinking that a significant recession is around the corner. But locally here in Dallas things are booming so much I now believe we will escape the next downturn (or at least be out of sync with it).

    I suspect we will see a big increase of in-migration as things get worse in California, around the rest of the U.S., in Latin America, and in China (the #2 foreign buyer here). Texas now has the 3rd most foreign buyers after California and Florida in the entire U.S.


    This in turn will continue to drive real estate up and cascade through the local economies creating jobs. This in turn attracts even more people.

    A big problem here is a lack of affordable homes. With a median household income of $58,190 for the DFW MSA and the current 3.75% interest rates, the median buyer can qualify for a $205,000 house with 5% down. With Dallas’ low home prices these are good homes in decent areas.

    However, the 2nd quartile only have a median income of $40,000 and likely have low FICO scores. So assuming their credit is above the minimum 620 score, their FHA interest rate will be 4.7%. This means that they can only qualify for a home of $131,000 or less (again with just 5% down).

    In a 35-mile radius of Dallas, which includes Fort Worth, extends past all the northern suburbs where Toyota and other companies are moving into, and even extends out into rural areas, there are a GRAND TOTAL OF 358 HOMES FOR SALE UNDER $131,000 FOR A POPULATION OF OVER 7 MILLION.

    Even worse, at least 50% of these houses for sale need significant work. Only 7 new homes are available in this price range.

    1,919 HOUSES SOLD AT $131,000 OR LESS so far this year (including pending sales). And since real estate is so seasonal, this is 7/9ths of the sales for the entire year. Only 32 of these were new houses. But even that is misleading as they are either in-fill houses in bad neighborhoods or extremely rural.

    To give you an idea of how ludicrous this market is, 9% of the houses that sold this year in this price range didn’t even have a single photo and another 10% only had 1 photo.

    • william says:

      I was in AT&T HQs earlier this year. They’ve had a policy of moving employees from around the country to Dallas. It’s real. I met many from NJ, IL, and other states who’ve had AT&T pay for their relocation to the Dallas area.

      • polecat says:

        May one should refer to it as ‘The Dallas Boil’……….

        …watch it fester!

        • JerryBear says:

          I remember Dallas as relentlessly hot and humid and buggy in the summer. Not my cup of tea….

    • Captain KurtZ says:

      We keep saying that same thing here in Seattle. Replace Amazon with AT%T and we have the local monopoly player that can’t fall. (before that it was MSFT)

      I think we have reached a tipping point. Rates can’t go any lower. Prices can’t rise anymore in relation to income. Shadow inventory from the last crash is still huge, and waiting to come back on the market, when the hedge funds realize that can’t make any money on real estate.

      Wages have barely moved in the last twenty years, but house prices have quadrupled. In our area of Queen Anne, little shitboxes, starter houses which need lots of work, that could be had for $149k, go for $600k. Often they get replaced with $800k town homes.

      Seattle is a notoriously cheap-ass town when it comes to wages. Only Amazon broke that mold. Starbucks, Boeing, Weyerhauser, Microsoft and the others did not go with them.

      Prices will crash back to wages.

      We also have a phenomenon here where everyone thinks they have a house worth a million dollars cuz some sleazy realtor told them so, and they should hold out for nothing less.

      The inventory (shadow too) in this range is HUGE. And there are two reasons they aren’t moving.

      1) Owners are so levered they don’t have any equity in the house. They couldn’t move cuz they can’t come up with even the 3% down if they wanted an equivalent house, so they are stuck.

      2) Banks aren’t lending on properties over a million dollars. They say they have jumbo loans available but you need 20% down. No buyers have 200k anywhere.

      So we have some craziness below a million that keeps driving up with median price that the cheerleaders keep talking about, but if Amazon backs up, we are in for it here in Seattle.

      • Excellent analysis. The consumer today will buy as long as there is a bank willing to lend them money, but we have an affordability problem. Not even with zero interest rates can everyone afford a home selling for $600,000 which is about what it takes to buy a three story 2500 square foot house on 2500 square feet of land in inner loop Houston.

  8. Drumpfabooie says:

    I see numbers of warehouses being built south of Dallas around Lancaster to Wilmer and new pads for future warehouses. A new warehouse here, a warehouse springing up over there, new warehouses everywhere! Big ones, some as large as 500,000 sf and a few 800,000+ sf. Dallas-Ft Worth area, Atlanta, Memphis, Indianapolis, St Louis/Edwardsville, Wilkes Barre, Harrisburg/Carlisle, Chambersburg, Harrisonburg, VA and I’ve see them being built in several other places around the country. Some are built to suit, others sit after completion waiting for a tenant, though maybe not for long. I don’t recall seeing a building boom like it in such a short time. Is it E-commerce related?

    It hasn’t affected the freight volume yet, the bounce we had has declined lately as is showing in the latest DAT trends. I use some of these sites as a quiet parking area. I never stay at the truck stops.

    In fact I’m thinking of taking some time off to work on my land and convert the interior of a new supersized van I bought last year into an RV. Watching what happens this week with the powder keg, especially with Wiki leaks showering sparks.

  9. Chicken says:

    “We are your government, representing your politicians and their special interest groups. We select winners and losers, we control the horizontal, we control the vertical.”

    Pay your taxes, fees, fines and invest accordingly!

  10. R Davis says:

    “scary numbers for car dealers”

    The business strategy is geared to growth & expansion.
    When there is only 1 auto maker & only 1 car dealership – man they are laughing.
    Enter competition.
    Toyota ….. hey, hey, come on now.

    You know how they tell us that the population of planet Earth is ever increasing & set to blow out to starvation mode any day now.
    Well it is kinda not true…….

    The Industrial Revolution 200 years ago, aprox:
    People got jobs & income & the more money they made the less children they had. Ever since then the population of planet Earth has steadily been decreasing.

    How does that make you feel ?

    Today the fertility rates of many countries has fallen below replacement levels. When this happens it is really hard to turn them around & we can realistically imagine that the people of planet Earth are headed for extinction.
    The USA is not far behind.
    China … could you believe it … the one child policy was not China’s best manover. The First child is not always the most fertile one.

    “Aren’t we so sick of the know it all schmuck at the top of the power brokerage & his inept buddies who know it all so well that they screw the population of the planet to zero.”

    So, what am I getting at …
    Business has been manufacturing full steam ahead, but the babies that were their future consumers were not being born 7 they never will be bors – there is a glut of goods manufactured & no one to buy them. Not today & not tomorrow.
    Nor were there any baby boomers born – it was The Establishment crying poor & means for The Establishment to syphon off monies.
    However, the baby boomers that were never born are today collecting their aged pensions.
    Now wouldn’t you like to know who that lucky guy was .. collecting baby boomer pensions to the tune of gazillions of dollars globally.

    In Australia we have the Australian Bureau of Statistics – a shameful bunch of no account ne’r do well collecting a handsome salary for doing not one bloody thing at all. These people have never looked out the window to see where they are let alone know the rubbish that they feed the media.
    What can I say …

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