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Recession was a hot topic for the Texas Real Estate Teachers Association’s recent meeting in College Station. Dr. Harold Hunt of the Real Estate Center gave the educators both pessimistic and optimistic forecasts and let the audience vote which way they thought the economy was headed. The pessimists won as most thought a recession will occur this year. Supporting the pessimistic view: the numbers showing private research and development is forecast to decline by 6.5 percent this year. Forty-four percent of commercial and industrial lenders have tightened lending standards in the last three months. Latest homebuilder surveys show that group's view of the coming year as "poor." The number of Americans who say they plan to buy a new home in the next six months has been falling since it peaked about a year ago. Fueling inflation fears is a forecast that the real gross domestic product will fall in 2001. A recession is defined as anytime the GDP is negative for two consecutive quarters, said Hunt. The U.S. economy is growing half as fast as it was this time last year. "The stock market is now the key to consumer confidence," Hunt said. "As consumer confidence falls, they spend less. Less spending results in lower economic output and higher unemployment. These lead to a further confidence decline. It's a self-fulfilling prophecy." Noting Christmas sales were the worst in a decade, Hunt added it appears retail chains are overbuilding. Although half of all business investment is in computers and software, the future is still grim for online shopping. Only 4 percent of Internet users say they buy online. Supporting the optimistic scenario: Hunt pointed to the fact that, despite recent declines, the trend line for corporate earnings is "where it ought to be" on an upward climb for the past ten years. "A survey of investors shows that 65 percent say they will buy tech stocks in 2001," said Hunt. "There are still 4.8 million Americans with technology-related jobs." The state's diversified economy is another positive asset for Texas, he said. Texas has many good deals -- Austin's average income of $76,300 compares favorably with San Francisco's $78,000, but the cost of living isn't comparable. Austin's is much less expensive. Class A offices in Austin rent for $30 per square foot compared to $56 in New York City. Inflationary pressures are in check, said Hunt. The Consumer Price Index is generally overstated by 1 percent and it is getting harder for businesses to pass cost increases on to consumers. The number of oil and gas rigs is up 129 percent from April 1999. Most rigs are drilling for gas, and Hunt feels gas prices will remain high. Mortgage rates will decline even further, Hunt predicted. This has already spurred a wave of refinancing. Builders are more mindful of overbuilding, and the inventory of unsold existing homes has been less than five months since mid-1998. Home sales continue strong. If a recession does occur, Hunt says Dallas will be hit hardest because of its dependence on tech firms. Houston will fare much better because of diversified economy that includes oil and gas industries and firms "In the long-term, air pollution, traffic congestion and lack of water will be the big issues confronting Texas," he said. "Either we will fix them, or they will overwhelm us." |
