Economists at Texas A & M University’s Real Estate Center say the real estate market should give a boost to the Lone Star State’s economy this year.

David S. Jones, senior editor for the Real Estate Center, stated in an announcement today that “real estate can take a lot of credit for getting the New Year off to a strong start” in Texas.

And James Gaines, research economist with the Real Estate Center at Texas A&M University, stated, “Soaring energy prices, devastation from hurricanes and the financial burden of the Iraq war dealt powerful blows to the U.S. economy in 2005,” says. “But thanks to consumers and historically low long-term interest rates, the economy continues to grow steadily. And the real estate market, particularly the residential market, is one of the reasons.”

Among the contributors to a favorable 2006 forecast:

Home prices – “While Texas has an active, record-setting housing market, prices are increasing much more slowly than in the rest of the country. Fears the state has a housing price bubble that may burst are not supported by facts,” according to the outlook.

“In the first half of 2005, Texas’ 4.7 percent house price appreciation rate was less than half the 13.4 percent national average. The average price for a Texas home in September 2005 was $176,800 or 15.9 percent higher than it was in 2002.”

Gaines said, “Through the first three quarters of 2005, Texas’ 6.3 percent increase in the median priced home was less than half of the 14.7 percent national increase.”

Home sales – An estimated 269,000 homes were sold by multiple listing services in Texas during 2005, a 34 percent increase over 2002.

Home construction – Gaines said that total 2005 single-family permits of about 166,500 represent an increase of about 10 percent since 2004.

Housing supply – Real Estate Center said they don’t expect a housing shortage that would drive prices up, and they don’t expect an oversupply that would depress the market. The 2005 estimated 5.6-month inventory of unsold existing Texas homes was only slightly less than the six-month inventory generally considered a balanced market, according to the announcement.

Housing affordability – Price increases, sales and construction levels in 2006 will probably be equal to or slightly less than the 2005 rate, according to the outlook, called “The State of Real Estate.” The forecast was published in the January 2006 of Tierra Grande magazine, a Real Estate Center quarterly journal.

Interest rates – “The Federal Reserve raised its influential fed funds rate six times in 2005. While the rate hike raised short-term interest rates (bank loans, credit cards), so far long-term interest rates have not been significantly influenced.” The 30-year, fixed-rate mortgage was 6.36 percent in November, and in December it was 6.27 percent. Mortgage market conditions and general economic growth will determine the market for the remainder of the decade.

“The average rate for all of 2005 was 5.87 percent; it was 5.84 percent in 2004. For 2006, the rate is expected to be between 6.4 and 6.9 percent,” Gaines stated.

Personal income – “Texas ranks 12th among all states in personal growth income. Total personal income is closely related to total output. A higher-than-national-average growth rate means the state’s economy is growing strongly,” according to the announcement.

Employment – For the year ending in October 2005, Texas non-farm employment added 69,000 jobs for the fiscal year ending October 2005. “After lagging the nation for much of the year, Texas’ employment growth for October trailed the United States by only 0.6 percent. Meanwhile, Texas unemployment hit a four-year low – 5.2 percent,” the Real Estate Center reported.

Land markets – “Recreational buyers and investors are vying with farmers and ranchers for available acreage. Expectations of anemic returns in other investments have contributed to a thriving Texas land market,” the center reported.

The median price of an acre of Texas land during the first half of 2005 was $1,379, or about 11 percent higher than it was a year earlier. The number of sales fell from 4,711 to 3,367, and the average size of a sold tract fell from 108 to 102 acres in that time.


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