About 300 bankers, insurance brokers and businesspeople gathered in a hotel ballroom to hear about Houston’s economic forecast for 2019 and beyond. Much like the city’s winter weather, they were told the climate should be mostly pleasant with occasional storms and cold snaps.
Metrics used to measure growth won’t spike, much like the mercury in a thermometer this time of year, but they also won’t dip very low.
That was the gist of the message delivered by Luis Torres, a professor with the Texas A&M University Real Estate Center who was the featured speaker at the annual Greater Heights Chamber of Commerce Economic Forest Luncheon on Jan. 31 at the Sheraton Houston Brookhollow Hotel. Torres predicted “slower growth and more uncertainty” for the upcoming year while ruling out the possibility of an economic recession.
“That I think was the collective sigh of relief we heard around the room,” chamber president Jacob Millwee said, “even though there was something of a forecast for 2020 that could potentially turn grim.”
Torres touched on a wide range of economic topics in a slide presentation and question-and-answer session with The Leader publisher Jonathan McElvy, who served as master of ceremonies. Torres said Houston remains an economic leader in Texas and the United States and should continue to see job growth in the oil and gas industry and other sectors as well as upticks in the residential and commercial real estate markets.
But most of that growth is expected to be moderate compared to recent years and comes with caveats in some cases. Torres said the recent shutdown of the federal government had a negative impact on residential housing construction and that Texas homes costing less than $200,000 are becoming “extinct.”
The commercial real estate market, on the other hand, is projected to remain robust.
“I should have bought a warehouse about five years ago, because that seems to be the strong part of the economy,” said Tony Allman, a regional retail center manager for PrimeWay Federal Credit Union.
While Torres’ forecast for 2019 was mostly bright, he suggested that darker skies potentially loom in 2020. He said oil prices are expected to hover around $55 per barrel for the next few years, which Millwee saw as a troublesome sign for Houston and its energy-centric economy.
Torres said increasing trade tensions between the U.S. and foreign markets could stunt investment and cause a slowdown in the global economy, potentially contributing to a recession beyond 2019.
Torres said a good predictor of a recession is the yield curve, which plots the interest rates of bonds with equal credit quality but differing maturity rates. If the yield curve inverts, meaning long-term debt instruments will have a lower yield than short-term debt instruments, Torres said a recession typically follows about one year later.
The last slide Torres showed his audience revealed the yield curve has been trending downward during the last few years.
“The yield curve is still positive,” Torres said. “But if the yield curve turns negative … I would be worried.”