By Jim McAlister IV, CEO, Rockspring Capital
What’s my prediction for the rest of 2017-2018? If energy independence and Dodd Frank Act dismantling are on the country’s agenda, next year’s real estate market in Texas is going to be hot, despite the recuperating oil market. If you’re a real estate developer, you better position yourself now because things are going from very good to ridiculously good.
Here are some recent headlines to prove my point: “Texas economist predicts homebuilding boom, energy rebound will lengthen economic expansion,” “Dallas Fed: Amid oil, trade risks, Texas economy poised to grow,” and as reported in the San Antonio Express News, “A decade-long boom in single-family house construction and a likely comeback for the energy business will extend an already longer-than-average U.S. economic expansion.”
In Houston, perhaps the best summation of our city’s resilient economy was put forward earlier this year by Robert Gilmer at the University of Houston’s Bauer College of Business’ Institute for Regional Forecasting: “There has been considerable surprise from the public at large at Houston’s economic performance, especially by those who don’t live or work here, and who expected a tremendous crash like the 1980’s. That crash was never in the cards this time around, even if modest luck had not been on our side. There were serious speculative excesses in oil this time around, and some overbuilding in Houston’s residential and commercial real estate. But careful comparisons of the 1980’s to today make it clear that THIS oil bust never had the opportunity to spill into Houston’s real estate and banking sectors the way it did in the ‘80s.”
I couldn’t agree more. Have you looked at Texas’ latest oil rig count? It’s up 80 percent in Texas over the first quarter last year. Drilling permits have doubled, to 1,300. And state oil and gas employment has risen by 9,000 from the trough in September, according to Texas Petro Index, a monthly report on the state’s oil and gas activity released this week. “We still have a long way to go,” said energy economist Karr Ingham, who created the index. “But 2017 is going to be a year of recovery and expansion in the Texas statewide oil and gas exploration and production economy.”
As optimism has crept back into the oil markets, so too has population growth, which has proven to be a tailwind for successful real estate investing. Through 2040, five of the top 10 U.S. cities projected for the fastest population growth will be in the “Texas Triangle,” comprising Houston, San Antonio, Austin and Dallas-Forth Worth. Despite coastal disbelief, people are rushing to live in Texas. Relocation into the state, in record numbers, from around the country and around the world, has created the best possible equation for investing now in Texas real estate: an unbelievably strong housing demand with a very tight supply. In fact, the total supply of lots continues to lag behind the demand for new housing and will lag behind for the foreseeable future, creating an investors’ palette of limitless opportunity.