Houston Apartment Association State of the Industry Breakfast January 27, 2015 Houston Apartment Foundation Thank you to our Generous Sponsor: - ForRent MEDIA SOLUTIONSW ForRent.com Houston Apartment Association State of the Industry Breakfast January 27, 2015 Houston Apartment Foundation The Houston Economy Jesse Thompson Regional Business Economist The Federal Reserve Bank of Dallas, Houston Branch January 2015 Image from http://peoplesguidetohouston.wordpress.com/category/uncategorized/ Spot Price Declines continue Will WTI stay in the $45-50 range? Dollars per gallon 3.0 Dollars per barrel 95 2.8 2.6 85 2.4 2.2 75 2.0 1.8 1.6 1.4 1.2 1.0 29-Aug-14 65 Gasoline - Gulf Coast #2 Diesel - Gulf Coast 55 Jet fuel - Gulf Coast WTI 45 29-Sep-14 29-Oct-14 29-Nov-14 29-Dec-14 Texas leads decline in U.S. rig count Decline in rig counts broadens in January change in rig count since October 2014 20 0 -20 -40 -60 Other (US ex TX) U.S. Major Basins (Ex Tx) -80 Texas -100 SOURCE: Baker Hughes. Author’s calculations. Houston vs U.S. Business Cycles Log Change 60 U.S. Recessions (NBER) WTI Houston Recessions Houston Index 1 40 20 0 -20 -40 0 Q2-79 Q3-80 Q4-81 Q1-83 Q2-84 Q3-85 Q4-86 Q1-88 Q2-89 Q3-90 Q4-91 Q1-93 Q2-94 Q3-95 Q4-96 Q1-98 Q2-99 Q3-00 Q4-01 Q1-03 Q2-04 Q3-05 Q4-06 Q1-08 Q2-09 Q3-10 Q4-11 Q1-13 Q2-14 -60 *Houston recession start dates based on two consecutive quarters of decline; recession ending based on two consective quarters of growth. Houston Lags Oil price movements, and is more weakly connected than in the past. Correlation 0.7 0.6 0.5 0.4 In the 1980’s Houston and Oil prices move together Now, Houston’s connection to oil much weaker. 0.3 0.2 0.1 0 -0.1 -0.2 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 -14 -15 -16 -0.3 Note: U.S. Wellhead price of oil and business cycle index were whitened for each business cycle before calculating correlations. SOURCE: Energy Information Agency, Federal Reserve Bank of Dallas. Author's calculations Oct-14 Nov-13 Dec-12 Jan-12 Feb-11 Mar-10 Apr-09 May-08 Jun-07 Jul-06 Aug-05 Sep-04 Oct-03 Nov-02 Dec-01 Jan-01 Feb-00 Mar-99 Apr-98 May-97 Jun-96 Jul-95 Aug-94 Sep-93 Oct-92 14 Nov-91 Dec-90 Jan-90 Health and Professional Employment are a larger share of Houston 16 Professional & business svcs Education and Health Mining 12 10 8 6 4 2 Outlook Outlook for region declines 3-month log change 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 U.S. Leading Index -8.0 Texas Leading Index -10.0 -12.0 Jan-2007 Jul-2008 SOURCE: Conference Board. Federal Reserve Bank of Dallas. Jan-2010 Jul-2011 Jan-2013 Jul-2014 Outlook Weakest PMI since Q3-2009 Index 70 Component values 50 40 65 30 60 20 55 10 50 0 45 -10 -20 40 -30 -40 Dec-2014 Sep-2014 Jun-2014 Mar-2014 Dec-2013 Sep-2013 -50 Jun-2013 Mar-2013 Dec-2012 Sep-2012 Jun-2012 Dec-2011 Sep-2011 Mar-2012 NOTE: Composite index values>50 indicate expansion. Mar-2011 Dec-2010 Sep-2010 Jun-2010 Mar-2010 Dec-2009 Sep-2009 Jun-2009 Mar-2009 Dec-2008 30 Jun-2011 ISM-Houston Sales Index (NSA, %Bal) Production Index (NSA, %Bal) 35 Outlook Headwinds: • Falling Oil Prices… how diversified are we? • The Global Economy is Slowing Tailwinds: • The U.S. Economy • Expected 3% GDP growth through end of 2015 Houston 2014 jobs growth: up 3.7% Texas 2015 job growth: up 2-2.5% Houston 2015 job growth: up 1.5-2% Houston Apartment Association State of the Industry Breakfast January 27, 2015 Houston Apartment Foundation Apartment Trends 2014 Apartment Data Services, LLC Classification Analysis Greater Houston as of December 31, 2014 Absorption (units) Rent As of December 31, 2014 Supply Occupanc y ¢ per sq ft $ / mo 12 Mo Trend 3 Mo Trend 12 Months 3 Months 2014 Construction 18,761 37.3% 165.5 $1,579 - - 6,388 2,124 2013 Construction 12,186 88.3% 154.0 $1,461 0.3% -7.0% 4,240 365 Class A w/o 13 & 14 Const 123,04 7 93.9% 143.0 $1,357 3.5% -4.2% -298 -629 Class B w/o 13 & 14 Const 194,15 0 94.5% 102.4 $887 8.6% 3.1% 879 -493 Class C 173,55 3 93.1% 82.3 $690 7.6% 4.4% 3,430 -62 Class D 67,149 87.3% 66.7 $560 4.2% 0.1% 1,793 178 Overall 588,84 6 91.1% 105.2 $923 8.1% 0.5% 16,432 1,483 Houston Apartment Association State of the Industry Breakfast January 27, 2015 Houston Apartment Foundation Houston Apartment Association 2015 Education Conference Expo Thursday, May 14 NRG Center Houston Apartment Association State of the Industry Breakfast January 27, 2015 Houston Apartment Foundation