Although the latest economic forecasts outline a slower year of growth for the Austin area, it’s expected that growth will continue through 2020. An earlier economic update Wells Fargo Securities LLC Senior Economist Sarah House presented to the Greater Austin Chamber of Commerce’s annual Economic Outlook event spelled out what the Austin area could expect to see in the coming year. In summary: the Texas capital should see another year of economic expansion.
There’s no doubt that the Austin area’s economic growth can’t continue forever. In fact, many economic and political observers wonder if the U.S. economy is due for some sort of economic slowdown as the longest expansion on record continues. In her presentation, House noted that this expansion has also been the slowest on record. The creeping pace of economic expansion could make the U.S. economy more vulnerable to global tradewinds.
Austin Economic Outlook
In a report about the update by the Austin Business Journal, House said that “the good news is that recessions don’t come about from expansions dying away, but rather it tends to come about from either sort of imbalance… or some form of shock.”
“Despite that risk where we are essentially flying at a lower altitude making it easier to get knocked off the course, we think that the expansion can continue on through 2020,” she said. “But it will be slower than what we’ve seen over the past couple of years.”
That sentiment was echoed in another economic update by Luis Torres, an economist at Texas A&M Real Estate Center. He says that it would be difficult for the state to continue growing at the same pace after tax breaks provided a cash infusion to households and businesses over the last year. There may not be as much of a drop-off in Austin, though, as low unemployment and investment by the tech industry continue to give the area a lift.
“Austin is one of the strongest markets and the real estate market is also doing well,” Torres said.
He anticipates real estate will continue to stay strong, with applications for new housing permits in the area increasing more than 10% in 2020 and single-family home sales continuing to help drive Austin’s economy.
U.S. Economic Forecast
House expects U.S. gross domestic product growth to slow to less than 2% — compared to 2.9% growth in 2018 and a potential rate of growth around 2.25% for 2019 once all the numbers are crunched.
Some benefits from tax cut legislation in 2017 still trickled into the economy this year, but House said that “fiscal stimulus is fading.”
House thinks the current expansion can remain intact largely because consumers are in good financial shape, pointing to higher wages in a tight labor market, more conservative attitudes toward saving and the lowest rates of household debt obligations since the 1980s.
“Households aren’t having to devote a lot of their current income to past purchases, and so that gives some durability to this expansion,” she said.
Texas Leads In Gross Domestic Product Growth
Texas leads all other states in gross domestic product growth, according to the latest federal data from this year’s second quarter. Since measuring the rate of GDP growth has a lag, job growth can be used as a good substitute to measure expansion.
Employment growth has slowed in the past year or so compared from a “breakneck pace” a couple of years ago, House said. But it’s still a good sign to measure economic growth. While it’s slowing in the area, the more moderate rate of expansion signals healthy moderation rather than a downturn.
The Austin labor market is an area of major concern as firms struggle to fill open positions, House added. She pointed to slower employment growth in nearly all major industries, outside of leisure and hospitality, when comparing Oct. 2019 figures to the same month last year. She described it as a “labor bottleneck” that is constraining the rate of growth. Despite that, House still expects a “really strong year for Austin.” She projects the Austin area economy to grow at about a 5% rate.
Austin Housing Market
House said the local housing market remains strong — with home prices up 50% from the pre-recession peak. As values rise, homeowners benefit from gaining wealth in their home equity, but buyers are challenged to find homes in their price range. As a result, many real estate experts and city leaders are pushing for land-use reform. The idea is to streamline the development of more dense housing in the City of Austin to increase housing stock and thus curb the rate of price growth.
But House said Austin is still in good shape if its biggest issues are finding workers and more housing supply to keep up with the economy’s growth. Both factors are the result of unprecedented job and economic growth. According to House, “if you’re going to have problems, these are pretty good problems to have.”
Read more about Austin real estate.
Search Austin Area Homes for Sale