2016 Texas Prosperity Conference The Barnhill Center Brenham, Texas August 26, Dr. James P. Gaines Chief Economist. recenter.tamu.

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1 2016 Texas Prosperity Conference The Barnhill Center Brenham, Texas August 26, 2016 Dr. James P. Gaines Chief Economist recenter.tamu.edu

2 Housing and People 2

3 Texas Population ,000,000 50,000,000 40,000,000 From 1970 to 2010 (40 years), Texas added 13.9 million people an average rate of 349,000 per year 37,155,084 44,955,896 54,369,297 30,541,978 30,000,000 27,469,114 25,145,561 20,000,000 10,000, ,896,542 11,196,730 From 2010 to 2050 (40 years), Texas will add nearly 30 million people an average rate of about 750,000 per year Sources: U.S. Census Bureau, Texas State Demographer 2014 Projections ( Scenario) 3

4 Projected Population Change, Texas Counties, Legend tl_2010_48_county10 F6-6, ,000 2,001-10,000 10, , ,001-1,000,000 1,000,001-3,480,000 Source: Texas State Data Center 2012 Population Projections Migration Scenario 4

5 Percent Change from 2010 to 2050 by Age Groups in the Texas Population 300% 250% 200% In 2014, Texas ranked as the 3 rd youngest state with a median age of 34.2 as well as the 48 th oldest state with 11.5% > 65 years old 262.9% 150% 100% 116.2% 79.6% 105.1% 112.5% 50% 0% ALL < Sources: Texas State Demographer s Office 2014 Projections 1.0 Scenario; Real Estate Center at Texas A&M University 5

6 Average Age of Major Life Events First Marriage, Males: 28.6 Years First Marriage, Females: 26.6 Years First Child: 26.3 Years ~23 ~21.5 <21 Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, LLC 6

7 Macro Housing Issues Generational Demands: size, location, price, amenities Affordability: rents and prices increasing New Construction: not enough SF to balance; MF reacting to high millennial demand Development: Design, Density, Resources and Processes Regulatory Costs/Disruptions: lending; environmental; local land use growth controls & initiatives Federal State Local

8 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan Year Treasury; Federal Funds & 30- Year FMR 30 Year Mortgage 10 Year Treasury Federal Funds Effective Rate Source: Haver Analytics; FHLMC; St. Louis FED; Real Estate Center at Texas A&M University

9 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 HMI Housing Starts, thousands NAHB HMI & SF Starts Housing Market Index Single-Family Starts 2,000 1, , , , , Source: NAHB, Real Estate Center at Texas A&M University

10 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Home Sales 000s Home Sales 000s New and Existing SF Home Sales U.S. 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, New SF Home Sales Existing SF Home Sales 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Sources: US Census Bureau, NAR, SAAR

11 H16 First-Time Home Buyer Percent of All Buyers 60% 50% 47% 50% 40% 42% 40% 40% 40% 36% 39% 41% 37% 39% 38% 30% 33% 32% 31% 20% 10% 0% Source: NAR Home Buyers and Sellers Survey

12 U.S. & Texas Homeownership Rate U.S. Texas Dallas Houston Source: US Census Bureau; Real Estate Center at Texas A&M University

13 (Percent) Homeownership Rate in the South years and older years old years old years old Less than 35 years old 30.0 Source: US Census Bureau 13

14 H16 330, , , , , , , , , , , ,000 90,000 70,000 50,000 Annual Texas Home Sales 110, , ,789 Sales Avg Price Md Price 2015: Sales ~4% Avg. Price ~5% Md. Price ~7% 1H2016: Sales ~6% Avg. Price ~3% Md. Price ~6% 126, , , , , , , , , , , , , , , , , , , , , , , ,399 $330,000 $310,000 $290,000 $270,000 $250,000 $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 $90,000 $70,000 $50,000 Source: Real Estate Center at Texas A&M University

15 Texas Home Sales per 1,000 Households average average Source: US Census Bureau, Real Estate Center at Texas A&M

16 Jan-81 Jul-81 Jan-82 Jul-82 Jan-83 Jul-83 Jan-84 Jul-84 Jan-85 Jul-85 Jan-86 Jul-86 Jan-87 Jul-87 Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Texas Home Sales Cycles Y/Y Percentage Rate of Change in 12-Month Moving Average of Sales 30% 20% 10% 0% X -10% -20% -30% Source: Real Estate Center at Texas A&M University

17 H16 Texas SF Building Permits: Not Nearly Enough 180, , , , ,000 80,000 60,000 40,000 20, average 94,693/year 67,870 66, ,252 84,565 78,714 67,964 59,143 59,543 43,975 46,209 35,908 36,658 38,233 69,964 70,452 70,421 83,132 82, , , ,782 99, , , , , , ,366 81, % % 2016YTD 0% 81,926 68,170 68,230 67, , ,448 93,478 53,302 0 Source: US Census Bureau, Real Estate Center at Texas A&M

18 YTD Texas SF Building Permits per 1,000 Households average 12.2/year Source: US Census Bureau, Real Estate Center at Texas A&M

19 YTD Texas MF Building Permits: Making Up the Difference? 80,000 70, average 34,368/year % % 2016YTD -17% 64,135 66,792 60,000 50,000 51,576 47,271 53,196 46,918 54,145 53,615 40,000 30,000 30,165 31,281 32,521 40,245 40,715 28,381 33,958 35,791 37,537 38,671 33,036 30,729 24,723 20,000 13,879 15,837 19,741 10,000 8,273 9,304 8,291 0 Source: US Census Bureau, Real Estate Center at Texas A&M

20 e Texas Median HH Income & Median Home Price Indexed to Median Home Price Nominal HH Income Real HH Income Source: U.S. Census Bureau; Real Estate Center at Texas A&M University

21 Texas Households by Highest Affordable Price >$750,000 $500,000-$749,999 $400,000-$499, % 5.9% 6.6% % down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities $300,000-$399, % 1,007 $250,000-$299, % 645 $200,000-$249, % 893 $175,000-$199, % 526 $150,000-$174, % 576 $125,000-$149, % 644 ~43% of Texas HHs cannot afford home priced > $150,000 $100,000-$124, % 689 $70,000-$99, % 858 <$70, % 1, ,000 1,500 2,000 Thousands of Households Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University

22 Texas Households by Highest Affordable Price >$750,000 $500,000-$749,999 $400,000-$499, % 5.7% 4.7% % down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities $300,000-$399, % 996 $250,000-$299, % 636 $200,000-$249, % 886 $175,000-$199, % 538 $150,000-$174,999 $125,000-$149, % 7.4% ~45% of Texas HHs cannot afford home priced > $150,000 $100,000-$124, % 1,117 $70,000-$99, % 494 <$70, % 1, ,000 1,500 2,000 Thousands of Households Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University

23 Texas Households by Highest Affordable Price >$750,000 $500,000-$749,999 $400,000-$499, % 5.7% 4.7% % down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities $300,000-$399, % 956 $250,000-$299, % 660 $200,000-$249, % 867 $175,000-$199, % 530 $150,000-$174,999 $125,000-$149, % 7.4% ~46% of Texas HHs cannot afford home priced > $150,000 $100,000-$124, % 730 $70,000-$99, % 927 <$70, % 1, ,000 1,500 2,000 Thousands of Households Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University

24 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan Texas Residential Construction Leading and Coincident Indexes Coincident Index Total Housing Permits (12-MMA) Leading Index Source: Real Estate Center at Texas A&M University

25 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Texas Residential Construction Leading and Coincident Indexes Coincident Index Home Sales (12-MMA) Leading Index Source: Real Estate Center at Texas A&M University

26 Texas Housing the Past 3 Months 26

27 May Sales in Texas MSAs (Y/Y Percent Change) Source: Texas Realtor Data Relevance Project Real Estate Center at Texas A&M University

28 June Sales in Texas MSAs (Y/Y Percent Change) Source: Texas Realtor Data Relevance Project Real Estate Center at Texas A&M University

29 Sales down significantly almost everywhere 1. Short inventory 2. Slowdown in economy 3. Off from record highs in 2015 July Sales in Texas MSAs (Y/Y Percent Change) Source: Texas Realtor Data Relevance Project Real Estate Center at Texas A&M University

30 January February March April May June July August September October November December Monthly Texas Home Sales 35,000 30,000 25,000 20,000 15,000 YTD 1H % ,000 Source: Real Estate Center at Texas A&M University

31 May Avg. Price/sq.ft. (Y/Y Percent Change) Source: HAR, Texas Realtor Data Relevance Project Real Estate Center at Texas A&M University

32 June Avg. Price/sq.ft. (Y/Y Percent Change) Source: HAR, Texas Realtor Data Relevance Project Real Estate Center at Texas A&M University

33 July Avg. Price/sq.ft. (Y/Y Percent Change) Source: HAR, Texas Realtor Data Relevance Project Real Estate Center at Texas A&M University

34 2016 Texas Prosperity Conference The Barnhill Center Brenham, Texas August 26, 2016 Dr. James P. Gaines Chief Economist recenter.tamu.edu

Houston and Tomball Economic and. Housing Outlook. recenter.tamu.edu. Dr. James P. Gaines Research Economist

Houston and Tomball Economic and Dr. James P. Gaines Research Economist Housing Outlook recenter.tamu.edu THE CURRENT SITUATION The Future Just Ain t What It Used to Be! Yogi Berra National Economic Recovery