2022 has come and gone – and for many Americans it was a wild ride economically. Inflation, high housing costs and fluctuating gas prices all drove up the cost of living over the past year, while recession fears loomed heavy and continue to do so.
But it’s not all doom and gloom – and some bright spots may continue into 2023. Adam Perdue, economist with the Texas A&M Texas Real Estate Research Center, joined the Standard to share some predictions from the center’s 2023 Texas Economic Forecast. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Let’s begin with the big picture: What would you consider to be some overarching economic themes we expect to see in Texas this year?
Adam Perdue: Well, so far, at the end of last year, for the data that we have, employment growth and economic growth in Texas were still performing very, very well. We’ve surpassed the employment levels that we would have expected absent COVID, and we’re still growing at a much faster rate than we would have expected absent COVID. And so far, the economy has continued to do reasonably well going forward. Just taking that into account, we still expect that growth to slow back towards more typical rates, which is something more like 2% instead of the 5% that we have been seeing.
With so much gloom and doom in the conversations around the economy, is it that folks have been too pessimistic or that we just haven’t seen the ripple effects of a full downturn because not enough time has passed?
Well, so inflation has been on everybody’s minds. And so that is a real thing, and it is really hurting people. But basically, a lot of the doom and gloom seems to have just been ignoring the data. Real consumption continued to grow through the data that we’ve gotten so far; real production continued to grow. Most of the things that people actually care about besides prices of goods and services continue to look good. And so it almost seems like people have gotten so used, you know, forgotten about the 70s and 80s. And, you know, just in pain from inflation has gotten translated to, well, economic pain normally means recession.
One thing that folks in Texas have been watching quite closely is the housing market. What trends can home buyers and renters expect for the coming year? And do you think the market is going to continue to cool?
Yes, we do expect a continuation into cooling through 2023. This is primarily being driven by the high interest rates, which will persist probably through this year until inflation gets under control, and then even been past that for a little bit. And so then the amount that people can afford to pay for a house has dropped significantly for any given payment. And so then we’re readjusting to that new scenario, just like I’m not sure the price appreciation that we saw through 2020 and 2021 was driven by the drop in rates from where we were in 2019. So we were at 3.75% at the end of 2019, went down as low as 2.75%, and now we’re back up to 6.5% – that changes every week, but around 6.5%.
And so just the ability to pay for a house given a payment has just swung wildly with those interest rates. And so we continue to expect to see price growth through this year to continue to moderate. And then we wouldn’t be surprised at all – and to some extent expect – to maybe even see some year-over-year price declines. We’ve already heard some reports and seen some of the data in specific locations where prices have declined on a year-over-year basis.
Where seem to be some of the places where those prices have declined?
Well, so back in December, we heard from Arbor that the city of Austin pricing has already declined on a year-over-year basis through November. And so Austin is the one that’s most at risk just because it saw the highest price appreciation from 2020 and 2021.
Your report also looks at the energy industry, which is big business here in Texas. What are you projecting as far as oil and gas activity and prices?
Well, the oil and gas is always hard because it’s so susceptible to what’s going on in the rest of the world. Mid- to long-term trend is going to be around $80 a barrel. And what exactly happens is largely dependent on the global economy, which we’re concerned about any continuation of the hostilities or worsening of the hostilities in Ukraine by Russia. Exactly how the zero-COVID policy – and now its loosening – in China plays out. And then also the rest of the winter and the energy constrained Europe will have a massive impact on oil prices. So our mid- to long-term forecast is that $80 to $100. And it’s just those big scenarios that we can see on the horizon. So they’re white swans, but we don’t know exactly how they’re going to play out.
If we were to give you a ring about this time a year from now, do you think we’re going to be looking at 2023 as a down year for Texas, or are we going to be holding steady, more or less?
Again, that’s just how everything else plays out. So actually the big factor that I left out is exactly how inflation plays out with the Fed. They’re raising rates. And so, you know, do they do they manage to get a soft landing? Do we end up seeing a recession because they raise rates too much? Or do we continue? The worst case scenario is that they haven’t raised rates enough and we have continued high inflation, and then something else also triggers a recession, and then we end up with both high inflation and high unemployment. It’s very much the scenario that is on the Federal Reserve’s mind and that they are absolutely trying to avoid.