Dr. James P. Gaines Research Economist recenter.tamu.edu

Texas Uncertain Economy in a World of Uncertain Oil Prices Dr. James P. Gaines Research Economist recenter.tamu.edu

National Economic Recovery still Going 2

U.S. Outlook Expected GDP growth still modest: 2015 2.8%; personal consumption 2.5% Consumer spending rising Inflation not worrisome: 2015 1.5% - 2.0%, especially with lower gas prices Industrial production data generally positive Housing improving, adding to overall national economy; residential construction stable at 1 1.2 million units Jobs expanding; unemployment rate probably down under 5.5% level or better 3 Energy sector & oil prices major issue for the year

1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 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 Percent Change in Real GDP Since 1947 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 4.4% 8.7% -0.5% -0.9% 7.7% 3.8% 4.6% Average 3.4% rate of growth per year 1947-2005 -0.6% 7.2% 2.0%2.0% -0.9% 7.2% 2.5% 2.3% 6.4% 6.5% 6.1% 5.8% 4.4% 2.5% 4.8% 3.4% 3.1% 0.2% 5.3% 5.8% -0.2% -0.6% 5.6% 5.4% 4.6% 3.1% -0.3% 2.5% 4.5% 4.1% -1.9% 7.2% 4.1% 3.5% 3.6% 3.2% 1.9% 4.8% 4.5% 4.4% 4.1% 4.1% 3.7% 3.4% -0.2% 2.9% 2.5% 1.0% 1.8% 2.8% 3.8% 3.3% 2.7% 1.8% -0.3% 2.5% 2.3% 2.4% 2.2% -2.8% 1.6% Source: BEA

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 Thousands of Jobs U.S. Jobs Finally Recovered 150,000 140,000 130,000 2013 + 1.7% 2014 +2.0% 1999-2014 +7.6%!! 126,157 132,019 132,074 134,005 130,628 130,318 131,749 129,240 137,936 137,170 136,398 131,233 131,842 130,275 134,104 136,393 139,042 122,951 120,000 117,407 119,836 114,398 110,000 110,935 109,527 108,427 108,802 100,000 90,000 Sources: BLS, Real Estate Center at Texas A&M University 5

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 Unemployment Rate: Texas & U.S. 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 Texas US 2.0 Sources: BLS, Real Estate Center at Texas A&M University

Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 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 Inflation Remains Relatively Low 16.0% 14.0% 12.0% Consumer Price Index for All Urban Consumers: All Items 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Source: BLS, Y/Y % change in index 7

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 Consumer Confidence Index 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Recession Texas U.S. Source: The Conference Board (1985=100); Haver Analytics 8

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 Millions Consumers Spending Money Again Real Retail and Food Services Sales $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 Source: Federal Reserve Bank of St. Louis

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 Millions, SAAR Total Public and Private Construction Put in Place $1,200,000 $1,000,000 Public Private $800,000 $600,000 $400,000 $200,000 $0 Source: Census Bureau, Haver Analytics

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 Millions, SAAR Total Residential and Nonresidential Construction Put in Place $800,000 $700,000 Nonresdiential Residential $600,000 $500,000 $400,000 $300,000 $200,000 Source: Census Bureau, Haver Analytics

Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Billions Value of Nonresidential Construction in Texas $8 $7 $6 $5 $4 $3 $2 $1 $0 Source: McGraw Hill, Texas Comptroller of Public Accounts

Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Billions Value of Residential and Nonresidential Construction in Texas $10 $9 Nonresidential Residential Total $8 $7 $6 $5 $4 $3 $2 $1 $0 Source: McGraw Hill, Texas Comptroller of Public Accounts; Real Estate Center at Texas A&M University

TEXAS CURRENT SITUATION The Future Just Ain t What It Used to Be! Yogi Berra

Texas Issues 2015-2016 Price of oil fell more than 50% since July National economy, High Tech & Healthcare sectors still fairly strong: major influences Energy-dependent local economies (e.g. Houston, Midland) more vulnerable to significant downturns Statewide or local Slowdown vs. Decline? State budget expectations from Severance Tax affected by oil price decline Downstream offsets to Upstream cutbacks? 15

Oil Prices & Energy Prices may not have bottomed yet: Saudi Arabia continues to protect its market share Global oil production will increase before it decreases Global oil demand not rapidly increasing even with rapidly-falling prices. The rig count will drop: January US by 199 rigs to 1,683; Texas was down 99 rigs. Expect significant cut back in upstream capital spending on E&P, i.e., fewer wells drilled Increased geo-political-military volatility among oil producing nations that need (require) $95-$100+ oil price 16

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 Texas Active Rig Count & Price of WTI 1,000 900 Texas rigs down 49% from Nov. 14 (904 to 465) Rigs (left) $160 $140 800 $120 700 $100 600 $80 500 WTI $/bl (right) $60 400 $40 300 $20 200 $0 Source: Baker Hughes, Haver Analytics 17

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 Texas Leading Economic Index 135.0 130.0 Falling six months in a row 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0 Source: Federal Reserve Bank of Dallas, 1987=100 18

Billions Real Texas GDP $1,400 1,387.6 1,338.6 $1,300 1,252.0 $1,200 $1,100 $1,000 $900 872.0 909.0 937.7 966.0 983.1 989.9 1,035.8 1,056.5 1,118.3 1,165.0 1,173.5 1,202.0 1,167.2 $800 814.8 $700 $600 $500 $400 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: BEA, Federal Reserve Bank of St. Louis 19

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 Texas Annual Jobs 12,000,000 11,000,000 10,000,000 9,000,000 2012 2.9% increase 2013 3.0% increase 2014 3.1% increase 8,610,900 9,737,500 9,428,900 9,510,900 9,412,700 9,494,100 9,366,900 9,157,300 8,940,500 10,880,300 10,607,300 10,569,700 10,393,300 10,305,600 10,338,700 10,063,600 11,550,200 11,206,900 8,000,000 7,000,000 7,485,500 7,272,900 7,098,900 7,177,400 7,755,600 8,260,200 8,027,300 6,000,000 5,000,000 Sources: Texas Workforce Commission, Real Estate Center at Texas A&M University 20

Texas Industries and Government Sector Ranked by Employment Growth Rate From February 2014 to February 2015 Industry February 2015 February 2014 Change Percent Change Texas Total 11,698,400 11,336,000 362,400 3.2 Construction 671,600 625,200 46,400 7.4 Leisure and Hopsitality 1,196,400 1,138,800 57,600 5.1 Transportation, Warehouse, Utilities 487,600 464,400 23,200 5 Mining and Logging 309,700 295,900 13,800 4.7 Professional and Business Serivices 1,554,000 1,500,400 53,600 3.6 Education and Health Services 1,556,400 1,504,100 52,300 3.5 Trade 1,856,300 1,794,400 61,900 3.4 Financial Activities 708,600 689,400 19,200 2.8 Other Services 411,400 402,500 8,900 2.2 Information 204,300 201,500 2,800 1.4 Government 1,861,400 1,843,100 18,300 1 Manufacturing 880,700 876,300 4,400 0.5 Sources: Texas Workforce Commission, SA; Real Estate Center at Texas A&M University

Texas 2015 Outlook Nonresidential/infrastructure construction heavy for the year Home sales flat to down 10% depending on impact of oil prices and potential offsets from downstream, healthcare, technology, first-time buyers and National economy; maybe even lower interest rates 1H15 Houston, Midland, Corpus vulnerable to downturns from oil prices Austin, San Antonio and DFW not as vulnerable to oil prices but still may slip some from very high 2014 levels Home prices up 4% to 8% - continued tight S&D Employment growth rate more like U.S. (from 3.1% to ~2.0% or less)

Texas Long-Term Outlook Energy sector long-term growth stimulant: world energy demand will grow; U.S. (Texas) will be major supplier Local Growth Issues becoming more pressing, causing greater strain on state and local infrastructure and resources Favorable business tax and regulatory environment will fuel more business start ups and relocations to Texas Rapid population expansion will fuel growth

Major Demographic Trends & Changing Housing Preferences Aging population Generational changes Lifestyle & life cycle: Gen Y vs. Boomers Increasing racial/ethnic diversity & cultural shifts Economic Shift: income & wealth gap Educated and less well educated Age Race & Ethnicity Urban Concentration - urban areas 24

Overall Growth and Change in State Population 2010-2050 Texas D-FW Houston Austin San Antonio Population Population % of State Total Population % of State Total Population % of State Total Population % of State Total 2010 25,145,561 6,426,214 25.3% 5,920,416 23.5% 1,716,289 6.8% 2,142,508 8.5% 2020 30,541,978 7,920,671 25.8% 7,413,214 24.3% 2,306,857 7.6% 2,635,183 8.6% 2030 37,155,084 9,970,678 26.8% 9,278,789 25.0% 3,035,547 8.2% 3,182,644 8.6% 2040 44,955,896 12,728,992 28.4% 11,519,566 25.6% 3,960,317 8.9% 3,735,981 8.3% 2050 54,369,297 16,367,293 30.4% 14,221,267 26.1% 5,176,940 9.7% 4,013,515 7.7% Number Increase 29,223,736 9,941,079 34.6% 8,300,851 28.2% 3,460,651 12.0% 2,151,724 7.0% Percent Increase 116.2% 154.7% 140.2% 201.6% 100.4% 82% of total increase will go to the Major MSAs Sources: U. S. Census; Texas State Demographer 2014 Projections (2000-2010 Scenario) 25

Percent Change from 2010 to 2050 by Age Groups in the Texas Population 300% 250% 259.0% 200% 150% 100% 119.5% 89.4% 101.8% 111.7% 110.5% 50% 0% ALL <18 18-24 25-44 45-64 65+ Sources: Texas State Demographer s Office 2012 Projections 1.0 Scenario; Real Estate Center at Texas A&M University 26

2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014 Texas First-Time Home Buyer Percent of All Buyers 60% 50% Long-term average 40% 47% 50% 40% 30% 42% 40% 40% 40% 36% 39% 41% 37% 39% 38% 33% 29% 20% 10% 0% Source: NAR Home Buyers and Sellers Survey; 2014 Texas Home Buyers and Sellers Survey

Total <34 Years 34-48 Years 49-58 Years 59-67 Years 68 > Years First-Time Home Buyers by Age Group (Percent of All Buyers) 80% 70% 2014 Texas first-time buyer was 32 60% 50% 40% 30% 76% 20% 10% 38% 35% 0% 16% 9% 2% Source: 2014 NAR Home Buyers and Sellers Survey

<34 Years 34-48 Years 49-58 Years 59-67 Years 68 > Years Age of All Home Buyers (Percent Distribution and Median Age in Group) 35% 30% 29 40 2014 Texas buyer was 45 25% 20% 15% 31% 30% 53 63 10% 5% 0% 16% 14% 72 9% Source: 2014 NAR Home Buyers and Sellers Survey

Biggest Obstacles to Homeownership All adults 18-34 year-olds only Saving enough for a down payment 55% 58% Not having a stable job 36% 43% Having a poor credit history 35% 33% Qualifying for a mortgage 32% 29% Unable to pay off existing debt 26% 30% Rising home prices 22% 23% Rising mortgage rates 15% 18% Limited inventory 5% 5% Among renters who wish to buy a home right now. Respondents could choose multiple options. Survey conducted November 2013. Trulia Trends, December 2013.

Many renters say they tend to live payday to payday Source: FHLMC, Perceptions of Renting and Homeownership, Multifamily Research Perspectives, December 8, 2014

In the next three years, do you expect to continue renting or purchase home? Source: FHLMC, Perceptions of Renting and Homeownership, Multifamily Research Perspectives, December 8, 2014

Gen Y Housing Outlook Gen Y Emerging Adults Plugged in Social Educated Outspoken More liberal Multicultural High performance High expectations Marry later buy later Fewer children, later Gen Y Housing Seen the housing collapse Currently 51% rent 80+% eventually want to buy First-time buyers mostly with financial constraints to buying Jobs and student debt = less savings for down payment First-time buyers <30% vs. historic 40% Gen Rent Sources: M. Leanne Lachman and Deborah L. Brett, Generation Y: America's New Housing Wave, Urban Land, February 2011, FNMA National Housing Survey; Pew Research Group; Real Estate Center at Texas A&M University 33

The Current Housing Market Oil prices, employment and home prices Recent price/cost increases and Affordability Tight/Difficult mortgage credit Interest rates Shifting demographics: families, age, ethnic Gen Y demand Difficulty of first-time buyers to enter the market Attitude toward Homeownership Institutional investors All-cash sales

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 Interest Rate Mortgage and 10-Year Treasury Rates are DOWN 6.0 5.0 10-YR Treasury 30-YR Mortgages 4.0 3.0 2.0 1.0 Source: Federal Reserve Bank of St. Louis; FHLMC; Real Estate Center at Texas A&M University

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 (000s SAAR) 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 1,012 970964 779 844 899 811813 New SF Home Starts 1963-2002 average per year (1.06 million) 1,309 1,151 1,132 888892 1,162 1,451 1,433 1,194 852 705 663 1,067 1,084 1,072 1,179 1,146 1,081 1,003 895 840 1,030 1,126 1,198 1,076 1,161 1,134 1,359 1,271 1,303 1,273 1,231 1,499 1,716 1,610 1,465 1,046 622 445 471 434 537 621 647 1,100* 803* 200 *NAHB projections Feb 2015 Source: US Census Bureau; NAHB; Real Estate Center at Texas A&M University

Jan-00 Jul-00 New and Existing SF Home Sales U.S. 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 Existing Home Sales 000s 8,000 New Home Sales 000s 1,600 7,000 1,400 6,000 5,000 Existing SF Home Sales (left axis) 1,200 1,000 4,000 800 3,000 600 2,000 1,000 New Home Sales (right axis) 400 200 0 0 Sources: US Census Bureau, NAR, SAAR 37

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 HMI Housing Starts, thousands NAHB HMI & SF Starts 100 90 Housing Market Index Single-Family Starts 2,000 1,800 80 1,600 70 1,400 60 1,200 50 1,000 40 800 30 600 20 400 10 200 0 0 Source: NAHB, Real Estate Center at Texas A&M University 38

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 Annual Texas Home Sales 310,000 290,000 270,000 Sales Avg Price Md Price 266,842 292,805 275,584 276,459 284,790 $310,000 $290,000 $270,000 250,000 230,000 210,000 190,000 Sales 2013 up 16% 2014 up 3% 196,401 201,528 184,056 188,738 216,147 241,020 232,381 213,334 203,637 205,786 238,060 $250,000 $230,000 $210,000 $190,000 170,000 150,000 130,000 110,000 90,000 70,000 107,107 100,04799,619 122,134 116,604 121,823 138,123 146,395 170,638 $170,000 $150,000 $130,000 $110,000 $90,000 $70,000 50,000 $50,000 Source: Real Estate Center at Texas A&M University 39

Texas Monthly Home Sales & WTI Price/bl January 1986 to Present 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 1986-1989 1990-1995 1996-1999 2000-2005 2006-2009 2010-2014 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 WTI Spot Price FOB Cushing, OK Source: EIA; Real Estate Center at Texas A&M University

1980 1981 1982 1983 1984 1985 1986 1987 1988 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 2014p Texas SF Building Permits 180,000 160,000 140,000 2014 up 10%; slightly below 1995-2012 average (104,800) 151,384 137,493 166,203 163,032 120,000 100,000 80,000 60,000 40,000 67,870 66,161 103,252 84,565 78,714 67,964 59,143 59,543 43,975 46,209 36,658 35,908 38,233 83,132 82,228 70,452 69,964 70,421 122,913 111,915 108,782 99,912 101,928 120,366 81,107 81,926 68,170 68,230 67,254 103,050 93,478 20,000 0 Source: US Census Bureau, Real Estate Center at Texas A&M 41

Texas SF Permits & WTI Price/bbl Monthly January 1991 to Current 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1991-1995 1996-1999 2000-2004 2005-2009 2010-2014 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Avg. Monthly WTI Spot Price FOB Cushing, Ok Source: U.S. Census; EIA; Real Estate Center at Texas A&M University

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 Texas Median Home Price $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 2013 +9.1% 2014 +7.0% 78,200 80,00081,600 75,200 68,50068,100 71,200 100,900 96,200 90,600 86,400 112,100 130,100 127,700 124,500 119,400 136,800 147,300 146,900 147,600 148,800 143,100 145,800 158,000 172,300 184,400 Source: Real Estate Center at Texas A&M University 43

Texas Median Price & WTI Price/bbl Monthly January 1990 to Current $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 $90,000 Correlation coefficient of 0.86 $70,000 $50,000 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

Home Sales by Price Range 14 12 10 2004 66% <$160,000 2014 40% < $160,000 2004 2014 8 6 4 2 0 Source: Real Estate Center at Texas A&M

1980 1981 1982 1983 1984 1985 1986 1987 1988 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 Texas MF Building Permits 180,000 160,000 159,603 140,000 120,000 111,026 2014 +17.4% 100,000 95,086 80,000 60,000 40,000 20,000 0 59,057 51,592 64,247 33,857 13,879 5,251 3,8508,273 9,304 8,291 3,745 51,576 40,245 30,165 31,281 32,521 40,715 28,381 33,958 35,791 37,537 33,036 47,271 38,671 53,196 46,918 15,837 19,741 30,729 63,000 54,145 53,615 Source: US Census Bureau, Real Estate Center at Texas A&M 46

AFFORDABILITY How much down? How much per month?

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 US and Texas Median Home Price $250,000 $225,000 $200,000 Texas remains a housing bargain, but not by as much. The gap between the US and Texas median price widened to 38%, but has narrowed to 11% $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 Source: NAR; Real Estate Center at Texas A&M University

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 2014e U.S. Median HH Income & Median Home Price Indexed to 1989 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 Median Home Price Nominal HH Income Real HH Income 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 Source: U.S. Census Bureau; Real Estate Center at Texas A&M University

Median Home Price as a Multiple of Median Household Income 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 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 2014e 5.70 5.30 4.90 4.50 4.10 3.70 3.30 2.90 2.50 2.10 3.48 3.603.70 3.33 3.82 3.65 3.70 3.61 3.61 3.563.57 3.44 4.134.15 4.10 4.01 3.983.97 4.05 4.15 4.03 3.9 3.943.953.92 3.964.02 3.56 3.49 3.38 3.43 3.423.45 3.55 3.52 3.47 3.49 3.55 3.513.48 3.53 3.363.35 3.26 3.223.20 3.253.283.27 3.29 3.03 3.07 3.15 US Existing Homes ( 75-00 avg. = 3.36) US New Homes ( 75-00 avg. = 3.82) 2.65 2.69 2.72 2.57 2.60 2.55 2.612.58 2.69 2.61 2.41 3.85 2.902.92 4.42 4.50 4.07 4.98 4.40 4.28 5.20 5.11 4.73 4.60 4.94 4.34 4.61 3.91 4.35 4.50 4.54 5.18 4.81 3.80 3.46 3.51 3.47 3.32 3.25 3.303.30 3.10 3.14 3.203.163.07 3.12 3.03.04 5.30 Texas MLS Homes ( 89-10 avg. = 2.88) 3.92 3.37 3.25 Source: US Census Bureau, NAR, Real Estate Center at Texas A&M University

Texas Uncertain Economy in a World of Uncertain Oil Prices Dr. James P. Gaines Research Economist recenter.tamu.edu