Dr. James P. GainesChief Economist

2018 a Very Good Year Economically For Texas

• Rebound from Harvey in 2017 strong, but dragging

• State GDP +6% (2Q18) #1 in U.S. [estimate ~4.5% 2018 total]

• Personal Income +5.1% (3Q17-3Q18)

• Oil Prices >$70 until 4Q

• Population increased 379,128 to 28,701,845• 190,951 natural increase (50.3%)

• 104,976 foreign immigration (27.7%)

• 82,569 domestic immigration (22%)

• Jobs increased 391,800 +3.2%

2

Texas Economic Outlook: 2019 Positive but Slower Growth Than 2018

3

Upside

U.S. Economy stays relatively strong

Employment: ~2.7% from 2.9% in 2018

GDP: 4% 2019 from ~4.5% 2018

Energy sector neutral; oil prices $40-$60/bl.,

production up

Population expansion continues but at slower pace

Exports doing well and contributing to economy – trade

agreements add uncertainty

Retail Sales steady but not significantly higher

Texas Economic Outlook: 2019 Positive but Slower Growth Than 2018

4

Downside: U.S. & Global Issues

Greatest headwinds from psychological impacts and

counter-productive political-fiscal-monetary actions

Treasury & Fed Monetary Policy - sell-off of Fed

assets and financing 2019 deficit

Fed increases rates too much, too fast

Yield curve shifts create uncertainty

Housing market softer, new construction flat & higher

unaffordability growing concern

Global economic flattening: growth slower than expected

Texas’ Leading Economic Index

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

140.0

Source: Federal Reserve Bank of Dallas, 1987=100

T

e

c

h

W

r

e

c

k

GreatRecession

Oil Bust

A composite of 8 leading indicators: 1) value of

the dollar, 2) U.S. leading economic index, 3)

real oil price, 4) well permits, 5) initial claims

for unemployment insurance, 6) Texas stock

index, 7) help-wanted index, and 8) average

weekly hours worked in manufacturing.

Solid growthafter oil bust,

but falling with latest price

decline.

Weekly Active Texas Rig Count & Price of WTI

6

11/21/2014, 906

5/20/2016, 173

6/27/2014, $106.69

2/12/2016, $28.14

$0$10$20$30$40$50$60$70$80$90$100$110$120$130$140$150$160$170$180

100150200250300350400450500550600650700750800850900950

1,000

1/7

/20

00

4/2

8/2

00

08

/18

/200

01

2/8

/200

03

/30

/200

17

/20

/200

11

1/9

/200

13

/1/2

002

6/2

1/2

00

21

0/1

1/2

00

21

/31

/200

35

/23

/200

39

/12

/200

31

2/3

1/2

00

34

/23

/200

48

/13

/200

41

2/3

/200

43

/24

/200

57

/15

/200

51

1/4

/200

52

/24

/200

66

/16

/200

61

0/6

/200

61

/26

/200

75

/18

/200

79

/7/2

007

12/2

8/2

00

74

/18

/200

88

/8/2

008

11/2

6/2

00

83

/20

/200

97

/10

/200

91

0/3

0/2

00

92

/19

/201

06

/11

/201

01

0/1

/201

01

/21

/201

15

/13

/201

19

/2/2

011

12/2

2/2

01

14

/13

/201

28

/3/2

012

11/2

1/2

01

23

/15

/201

37

/3/2

013

10/2

5/2

01

32

/14

/201

46

/6/2

014

9/2

6/2

01

41

/16

/201

55

/8/2

015

8/2

8/2

01

51

2/1

8/2

01

54

/8/2

016

7/2

9/2

01

61

1/1

8/2

01

63

/10

/201

76

/30

/201

71

0/2

0/2

01

72

/9/2

018

6/1

/20

18

9/2

1/2

01

81

/11

/201

95

/3/2

019

Rig Count

(left)

WTI $/bl.

(right)

Rig Count up 362, +209% since May 2016

Source: Baker Hughes; EIA; RE Center at Texas A&M University

Monthly Change in Total Nonfarm Employment Texas

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Jan

-11

Ju

l-11

Jan

-12

Ju

l-12

Jan

-13

Ju

l-13

Jan

-14

Ju

l-14

Jan

-15

Ju

l-15

Jan

-16

Ju

l-16

Jan

-17

Ju

l-17

Jan

-18

Ju

l-18

Jan

-19

Ju

l-19

Nu

mb

er

of

Jo

bs

, S

A

Change in Monthly Employment Six-Month Moving Average

Sources: TWC; Real Estate Center at Texas A&M University

Average of ~23,700 jobs per month since January 2011

Texas Growth

Year

Jobs, NSA

(Dec-Dec)

Population

(July-July)

2010 215,800 439,887

2011 236,400 402,776

2012 374,400 433,903

2013 301,400 400,952

2014 420,400 475,157

2015 152,000 500,444

2016 146,200 449,982

2017 258,300 399,734

2018 391,800 379,128

8Sources: US Census Bureau; Texas Workforce Commission;

Real Estate Center at Texas A&M University

2010-2018

+3,881,963

people

+2,496,700

jobs

Major MSAs Economic Outlook

Business Cycle Indexes: Dallas, Houston Fort Worth, San Antonio & Texas

Months Seasonally Adjusted, 10/1980=100

180

200

220

240

260

280

300

320

340

360

380

400

420

440

460

480

500

Jan

-00

Ju

l-00

Jan

-01

Ju

l-01

Jan

-02

Ju

l-02

Jan

-03

Ju

l-03

Jan

-04

Ju

l-04

Jan

-05

Ju

l-05

Jan

-06

Ju

l-06

Jan

-07

Ju

l-07

Jan

-08

Ju

l-08

Jan

-09

Ju

l-09

Jan

-10

Ju

l-10

Jan

-11

Ju

l-11

Jan

-12

Ju

l-12

Jan

-13

Ju

l-13

Jan

-14

Ju

l-14

Jan

-15

Ju

l-15

Jan

-16

Ju

l-16

Jan

-17

Ju

l-17

Jan

-18

Ju

l-18

Jan

-19

Ju

l-19

Texas

Houston

Dallas

San Antonio

Fort Worth

10Sources: Federal Reserve Bank of Dallas; Real Estate Center at Texas A&M University

Austin & Texas Business-Cycle IndexesMonthly, Seasonally Adjusted, 10/1980=100

50100150200250300350400450500550600650700750800850900950

1000

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

11Source: Federal Reserve Bank of Dallas

Austin

Texas

Texas Major MSAs Employment Growth 2017, 2018 & 2019

3.2

2.8

2.3

1.0

2.3

1.8

3.5

3.3

2.4

3.1

1.6

2.9

3.1

2.9

2.2

3.0

1.4

2.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Austin Dallas Fort Worth Houston San Antonio Texas

Pe

rce

nt

Gro

wth

in

An

nu

al

Em

plo

ym

en

t

2017 2018 2019

12Sources: TWC; Real Estate Center at Texas A&M University

Texas Demographics

13

Pecos

Brewster

Webb

Hudspeth

PresidioTerrell

Culberson

Reeves

Val Verde

Crockett

Hill

Duval

Harris

Frio

Bell

Kerr

Kenedy

Starr

Polk

Clay

Edwards

Irion

Hall

Ellis

Jeff Davis

Sutton

Uvalde

Bee

Hale

Dallam

Leon

Bexar

Gaines

Hidalgo

Upton

Hartley

King

Erath

Jack

Kinney

Kent

Zavala

Brazoria

Tyler

GrayOldham

Dimmit

CassLynn HuntWise

Kimble

Lamb

Medina

Floyd

Terry

Coke

Llano

Ector

Andrews

Milam

Travis

Knox

Falls

Ward

Collin

Jones

Nolan

Potter

Nueces

Taylor

Real

Bowie

Young

Lamar

Martin

Garza

DallasFisher

Moore

Kleberg

Cameron

Cooke

Hardin

Schleicher

Gillespie

Foard

Wood

Menard

La Salle

Rusk

LibertyLee

Mills

Smith

Burnet

Cottle

Zapata

Coryell

Matagorda

Brown

Motley

Reagan Houston

Maverick

Jasper

Coleman

BaylorArcher

Scurry

Tom Green

Mason

Parker

Castro

Navarro

Brooks

Bailey

Deaf Smith

DeWitt

Lavaca

Donley

Hays

Goliad

Atascosa

Denton

BosqueEl Paso

Fannin

Tarrant

Wharton

CraneConcho

Carson

Runnels

Fayette

Crosby

Borden

Haskell

Calhoun

Newton

Live Oak

Randall

ShelbySterling

Jefferson

Briscoe

McMullen

Parmer

Jim Hogg

Mitchell

Wilson

Victoria

Trinity

Roberts

PanolaHoward

Walker

Bastrop

Grayson

San Saba

Midland

Hockley

Dickens

Swisher

Gonzales

Winkler Anderson

Dawson

Willacy

Grimes

Wheeler

Cherokee

Harrison

Colorado

Eastland

Lubbock

Karnes

Red River

Refugio

Austin

Hemphill

Williamson

Jackson

Blanco

Ochiltree

McCulloch

Loving

Sherman

Wilbarger

Hansford

Callahan

McLennan

Yoakum

Angelina

Hopkins

Lipscomb

StephensPalo Pinto

Stonewall

Hamilton

Montague

Bandera

Cochran

Jim Wells

Limestone

Kaufman

Fort Bend

Titus

Comal

Armstrong

Kendall

Freestone

Comanche

Glasscock

Johnson

Galveston

Henderson

Montgomery

Wichita

Brazos

Van Zandt

Chambers

Robertson

Waller

Sabine

Upshur

Hood

Hutchinson

Shackelford

Childress

Burleson

Nacogdoches

Lampasas

Collingsworth

Hardeman

Throckmorton

Guadalupe

Caldwell

Aransas

Marion

San Patricio

Madison

San Jacinto

Delta

WashingtonOrange

Rains

Gregg

Morris

San Augustine

Franklin

Somervell

Rockwall

Estimated Population Change, Texas Counties, 2010 to 2017

14Source: U.S. Census Bureau, 2017 Vintage Population Estimates;

Texas State Demographer’s Office

87% E

of I-35

67% in

Urban

Triangle

91 counties lost population

over the 7 year period.

tl_2017_us_county

NumCh10-17

-2,139 - 0

1 - 1,000

1,001 - 20,000

20,001 - 100,000

100,001 - 560,521

Texas Population 1910-20502018 Population Projection & 2017 Texas Water Plan

11,196,730

54,369,297

25,145,561

47,342,417

41,928,264

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2015

2020

2025

2030

2035

2040

2045

2050

15

From 1970 to 2010 (40 years),

Texas added 13.9 million people

From 2010 to 2050 (40 years),

Texas will probably add ~17- 30

million people

Sources: U.S. Census Bureau; Texas State Demographer’s Office 2018

Projection & 2000-2010 Scenario; Real Estate Center at Texas A&M University

2017 Texas

State Water

Plan

Revised 2018

Projection

(2010-2015

Rate)

2000-2010

Projection

16

Texas Housing

Market

2018 Percent Changes in Key Housing Measures

17

Sales

Average

Price

Median

Price

Months

Inventory

Median

Price/sf

Texas 1.8% 3.7% 4.5% (3.4)9.8% 5.0%

Austin 1.4% 4.2% 3.9% (2.3)9.7% 3.9%

DFW -2.4% 4.1% 3.9% (2.5)19.7% 5.7%

Houston 3.4% 2.7% 3.1% (3.5)13.5% 4.2%

San

Antonio 2.9% 4.2% 5.2% (3.2)8.0% 5.5%

Source: TR Data Relevance Program; Real Estate Center at Texas A&M University

Texas Single-Family Housing Markets Expected to Slow Down in 2019

18Source: Real Estate Center at Texas A&M University

2019 Home Market SlowdownFactors that may create a drag on home-buying demand

• Limited inventory availability

• Higher prices - Affordability & Price Fatigue

• Increasing interest rates

• Concerns about general economy –fear of recession or jobs

• Negative press coming off record year(s)

19

Source: TR Data Relevance Program; Real Estate Center at Texas A&M University

103,344102,789110,830

120,749126,525

126,279

142,940

151,861

177,179

191,189195,568

204,084209,438

224,215

250,380

277,649

304,762

286,778

241,666

221,768211,640213,968

247,680

287,833297,623

309,274

323,661

338,178343,833

347,271

$50,000

$70,000

$90,000

$110,000

$130,000

$150,000

$170,000

$190,000

$210,000

$230,000

$250,000

$270,000

$290,000

$310,000

$330,000

$350,000

$370,000

$390,000

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000

210,000

230,000

250,000

270,000

290,000

310,000

330,000

350,000

370,000

390,000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

p

Sales Avg Price Md Price

2018

Sales +1.7%, Prices +4.4%

2019p

Sales ~1%, Prices ~3.5%

Annual Texas Home Sales & Prices

20

2010-2018

Sales +64%,

Average Price +49%,

Median Price +59%

Texas Median Home Prices Continue to Climb

$68,470$71,656

$75,525$78,396$80,294$81,851

$86,462$90,879

$96,063$100,952

$111,642$118,808

$123,725$127,017$128,883

$135,788$141,905

$146,105$145,613$144,633$146,417$147,000

$156,800

$170,000

$182,500

$195,372

$210,000

$223,000

$233,000

$241,155

$50,000$60,000$70,000$80,000$90,000

$100,000$110,000$120,000$130,000$140,000$150,000$160,000$170,000$180,000$190,000$200,000$210,000$220,000$230,000$240,000$250,000

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9p

21

2017 +6.2%;

2018 +4.5%

2019p +3.5%

2012-2018p +49%

Source: TAR Data Relevance Program; Real Estate Center at Texas A&M University

Texas Median HH Income & Median Home Price Indexed to 1989

60

80

100

120

140

160

180

200

220

240

260

280

300

320

340

360

60

80

100

120

140

160

180

200

220

240

260

280

300

320

340

360

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: U.S. Census Bureau; Haver Analytics; Real Estate Center at Texas A&M University

2017 Adjusted HH Income +20%

Nominal HH Income +129%

Median Home Price +226%

1989 Median Price = 2.65 x Median HH Income

2017 Median Price = 3.76 x Median HH Income

11,879

14,270

38,706

64,530

60,366

44,992

53,004

24,626

19,602

5,197

5,087

80,000 60,000 40,000 20,000 0

2018 Sales

Texas 2018 Sales and Months Inventory by Price

23

3.6

3.2

2.4

2.2

2.7

3.4

3.9

4.5

5.3

7.5

10.3

0.0 2.0 4.0 6.0 8.0 10.0 12.0

$0 - $69,999

$70,000 - $99,999

$100,000 - $149,999

$150,000 - $199,999

$200,000 - $249,999

$250,000 - $299,999

$300,000 - $399,999

$400,000 - $499,999

$500,000 - $749,999

$750,000 - $999,999

$1,000,000 +

Current Mos. Inventory

Source: TAR Data Relevance Program; Real Estate Center at Texas A&M University

3.5%

4.2%

11.3%

18.9%

17.6%

13.1%

15.5%

7.2%

5.7%

1.5%

1.5%

About 61% of

sales in $100k

to $300k range

Very Tight

Inventory

to $300k

Texas SF Building Permits

38,233

46,209

59,543

69,96470,45270,421

83,13282,228

99,912101,928108,782

111,915

122,913

137,493

151,384

166,203163,032

120,366

81,107

68,230

68,170

67,254

81,926

93,478

103,045105,448

106,511

116,766123,422

126,014

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8e

201

9p

Source: US Census Bureau; NAHB; Real Estate Center at Texas A&M

2015 +2.3%

2016 +1.0%

2017 +9.6%

2018e +5.7%

2019p +2.1%

1995-2017 average

104,854/year

Texas MF Building Permits

8,96210,2989,514

15,545

32,23734,68435,720

43,794

56,918

44,716

32,620

38,427

42,40943,081

39,796

44,431

53,894

58,542

49,897

17,375

21,504

32,260

56,40656,644

67,319

69,995

59,34258,34660,82361,431

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8e

201

9p

Source: US Census Bureau, Real Estate Center at Texas A&M

2017 -1.4%; 2018e 4.2%; 2019p +1%

Texas Residential Construction Leading and Coincident Indexes

Jan 2000=100

40

60

80

100

120

140

160

180

40

60

80

100

120

140

160

180

Jan

-00

Ju

l-00

Jan

-01

Ju

l-01

Jan

-02

Ju

l-02

Jan

-03

Ju

l-03

Jan

-04

Ju

l-04

Jan

-05

Ju

l-05

Jan

-06

Ju

l-06

Jan

-07

Ju

l-07

Jan

-08

Ju

l-08

Jan

-09

Ju

l-09

Jan

-10

Ju

l-10

Jan

-11

Ju

l-11

Jan

-12

Ju

l-12

Jan

-13

Ju

l-13

Jan

-14

Ju

l-14

Jan

-15

Ju

l-15

Jan

-16

Ju

l-16

Jan

-17

Ju

l-17

Jan

-18

Ju

l-18

Jan

-19

Ju

l-19

Source: Real Estate Center at Texas A&M University

Leading Index

Coincident Index

Total Housing

Permits (12-MMA)

26

27

Housing

Markets

Around the

State

Source: TAR Data Relevance Program; Real Estate Center at Texas A&M University

18,32118,09518,414

19,469

22,193

26,448

29,767

27,571

22,068

20,40719,547

20,999

25,209

29,97130,164

31,435

32,711

33,94434,435

35,399

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

$340,000

$360,000

$380,000

$400,000

$420,000

$440,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

38,000

40,000

42,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

p

Sales Avg Price Md Price

2018 sales +1.4%,

prices +4%

2019p sales 2.8%,

Prices ~4%

Austin Home Sales

28

Bastrop, Caldwell, Hays, Travis & Williamson Counties

Source: TR Data Relevance Program; Real Estate Center at Texas A&M University

65,996

68,82869,748

72,581

80,346

88,821

95,509

88,602

75,314

67,475

62,87563,133

73,747

87,73989,324

94,056

98,773

102,234

99,791 98,793

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

$340,000

$360,000

$380,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

p

Sales Avg Price Md Price

2018 sales -2.4%, Prices +4%

2019p sales -1%, Prices ~3%

D-FW Home Sales

29

50,71652,067

54,685

58,724

64,764

70,397

78,326 75,110

63,015

58,116

54,922

57,257

66,640

78,395

80,55378,747

80,808

84,323

87,17788,136

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

$340,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,0002

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

p

Sales Avg Price Md Price

2018 Sales +3.4%;

Md. Price +3.1%

2019p Sales +1.1%;

Prices +4.5%

Houston Home Sales

30Source: HAR, Texas Realtors® Data Relevance Project;

Real Estate Center at Texas A&M University

15,80216,49716,204

18,149

20,869

24,530

26,73624,450

19,70919,04018,75518,752

20,863

24,469

26,109

28,766

31,289

32,48933,431

33,765

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

$340,000

$360,000

$380,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

38,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

p

Sales Average Price Median Price

Sales: 2018 +2.9% 2019p +1%

Prices: ~4%

San Antonio Annual Home Sales

31Source: SABOR, Texas Realtors® Data Relevance Project;

Real Estate Center at Texas A&M University

2019: Cautious Optimism• Economy is still doing fine; 2019 Positive Growth

at Slower Rate

• Uncertain interest rates

• Selective, limited housing inventory available to sell

• Different marketing and communications to prospective buyers

• Builders/Developers Rethinking Designs & Processes

• Changing loan underwriting requirements and standards

• Pricing difficult both for listings and for sales

• Office market seems to have reached bottom, while retail and warehouse will continue to register strong growth

32

Texas 2019

33

Dr. James P. GainesChief Economist