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Economic Outlook: Houston Mediocre-to-Partly Gloomy in 2017

Bill Gilmer

HOUSTON – (By Michelle Leigh Smith) – The Houston economy, under an oppressive lid of $50 a barrel oil, is headed for a lackluster 2017 featuring overbuilt office and multifamily markets and tepid job growth, according to University of Houston economist Dr. Bill Gilmer.

Gilmer delivered the mediocre-to-partly gloomy forecast to more than 800 Houston business leaders and UH supporters who filled an upstairs ballroom at the Hyatt Regency Houston Hotel last week for an economic outlook presented by the University of Houston’s C.T. Bauer College of Business’ Institute for Regional Forecasting. The thrust of the 33-year-old symposium series, which was started in 1984 by Dr. Barton Smith, is two-fold, covering both the overall economy and the Houston real estate market.

“The current state of the Houston real estate market reflects that apartments are overpriced, the office market is overbuilt, although less so compared to the 1980s.” says UH Dean Latha Ramchaud. “Single family housing is where the opportunity is.”

Ramchaud introduced Dr. Gilmer as the audience settled in to see an array of graphs depicting how their industries have fared in the face of oil prices that still hover at under $50 per barrel.

“Houston has slowed to almost no job growth for two years, but has seen no major economic reversal,” said Gilmer. “The US economy continues to grow at a healthy rate. In Houston, we’ve added 15,000 jobs in the last two months, after losing 70,000 over the last two years.”

He quoted stats from the U.S. Department of Labor and noted that many of the hirings are in what he calls “basic jobs,” in petrochemical refining and manufacturing and the unemployment rate was at 5.9 percent in March.

Gilmer projects 38,000 new jobs will be created this year, a paltry figure compared to four or five years ago when Houston was creating over 100,000 jobs a year.

“Part of the problem shows up in the industrial construction boom that will soon come to an end, leaving tens of thousands of construction workers out of jobs.” Gilmer said.

While Gilmer cautioned that the economic petrochemical boom is nearing the end of its cycle, with the completion of two new ethylene crackers by Dow and Ineos with ExxonMobil and ChevronPhillips expected to wrap up in mid-2017. “Polyethylene is right behind the ethylene, with ChevronPhillips in Sweeney and Dow in Freeport completing in the third quarter this year. LyondellBassell LaPorte will finish in 2019,” he said.

Despite a still lower than hoped for attendance at this year’s Offshore Technology Conference at NRG Center, there are some bright points that will sustain the economy of the nation’s fourth largest city.

“The US economy continues to work for Houston, assuming the great bust is behind us. The domestic sector continues to be robust. The probability of recession is quite low, in fact, less than one percent, according to predictions by Chauvet & Piger.”

Gilmer, who was formerly with the Federal Reserve Bank, said Houston’s job growth and housing look promising in the longer term future now that the energy challenges are behind us. Also, it sounds like Houston builders may soon realize a lot shortage.

Gilmer notes that prices were holding up in real estate south of I-10 West in Memorial and the Energy Corridor as sales recovered. “The Woodlands has cooled off and sales are flat and price increases are slow in Pearland, Sugar Land, Kingwood and Katy.”

Gilmer’s observations were reflected in comments from other business people around Houston.

“The data in Dr. Gilmer’s presentation showed strength of the Houston economy beyond oil,” says Susie Sirmons, Regional Sales Director for Meyers Research. “There’s a strong correlation between job growth and new single family housing development. Even Dr. Gilmer’s lowest forecast should be enough to spur new home development.”

““The new Med Center luxury apartments coming online have affected the desirability of single-family rental units as well,” says Ann Martin, Vice President of Roger Martin Properties. “These homes are still leasing, but they must be competitively priced and with quality features.”

Ever the optimist, with an indefatigable passion for both the University of Houston and business in the Bayou City, former Chairman of the UH Board of Regents Welcome Wilson Sr. shared a story of what his father said when he brought Welcome and his brother Jack to the University of Houston in 1946. “He believed then as do I that Houston would be the most important city for business in the South,’ says Wilson, Sr. “There were about half a million people in Houston then – now there are 6.5 million. My brother and I left Brownsville Junior College to come to the University of Houston.”

“I was 18 and UH was 18,” he says. “Dad told us, `Boys, I’ve paid your first semester’s tuition and I’ve paid your first month’s rent on this army surplus house trailer ($10). If ever you boys need anything, just call me up on the telephone and I’ll explain how you can get by without it.”

Gilmer’s predictions supported the same views presented by Mayor Sylvester Turner earlier this month at his State of the City Address at the Marriott Marquis Hotel. “The Houston greater metropolitan area is the only region to fall from the Kauffman Foundation’s recent rankings of metros measuring high-tech startup density. And with regards to venture capital, our region was ranked 31st in the nation in venture capital investment and third in the State of Texas, which is totally not acceptable.” For these reasons, Turner commissioned a task force to better understand the root cause of this problem and more importantly, how to fix it.

“Technology innovation and a vibrant startup community are key drivers to our City’s present as well as our future,” Mayor Turner says, calling Houston a Knowledge Capital because of the city’s concentration of ideas and innovation.

Call it the Knowledge Capital, or the Energy Capital of the World, Space City, Bayou City or H-Town, Houston won’t have a robust economic performance in 2017. But at least Houston’s economy will be adding jobs, not losing them.

May 14, 2017 Realty News Report Copyright 2017

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