2022 has come and gone — and for many Americans, it has been a crazy economic leap. Inflation, high housing costs and fluctuating gas prices have all pushed up the cost of living over the past year, while fears of a recession have loomed and continue to rise.
But it’s not all doom and gloom – and some highlights may linger into 2023. Adam Perdue, an economist at the Texas A&M Real Estate Research Center, joined the Standard to share some of the predictions from the Texas Economic Outlook 2023. Listen to the interview above or read the transcript below.
This transcript has been lightly edited for clarity:
Texas Standard: Let’s start with the big picture: what do you think are the main economic themes we expect to see in Texas this year?
Adam Purdue: Well, so far, at the end of last year, according to the data we have, job growth and economic growth in Texas were still very, very good. We have surpassed employment levels that we might have expected in the absence of COVID, and we are still growing at a much faster rate than we would have expected in the absence of COVID. And so far, the economy has continued to develop quite well. Just taking that into account, we still expect growth to slow to a more typical pace, which is more like the 2% instead of the 5% we’re seeing.
With such gloom and doom in talking about the economy, were people too pessimistic or did we just not see the ripple effects of a full recession because not enough time had passed?
So, inflation was on everyone’s mind. So this is the real thing and it really hurts people. But for the most part, it seems that much of the doom and gloom has simply ignored the data. Real consumption has continued to rise thanks to the data we have received so far; real production continued to grow. Most of the things people really care about, aside from the prices of goods and services, still look good. And that’s why it seems that people are so used to, you know, they forgot about the 70s and 80s. And, you know, just inflation pain translates to, well, economic pain usually means recession.
One thing that people in Texas are following very closely is the housing market. What trends can home buyers and renters expect in the coming year? And do you think the market will continue to cool down?
Yes, we expect continued cooling until 2023. This is primarily driven by high interest rates, which are likely to persist throughout this year until inflation becomes controlled and then even overcomes it for a while. Thus, the amount that people can afford to pay for a house has dropped significantly at any given payment. And then we adjust to this new scenario, just like I’m not sure that the price hikes we saw in 2020 and 2021 were due to falling rates from where we were in 2019. at the end of 2019 it dropped to 2.75%, and now we are back up to 6.5% – it changes every week, but about 6.5%.
And so it’s just that the ability to pay for a house, subject to payment, just swung a lot with these interest rates. And so we continue to expect price increases to remain modest this year. And then we will not be surprised at all – and to some extent we expect – perhaps even see some price reduction compared to last year. We have already heard some reports and seen some data in specific places where prices have been declining compared to last year..
Where do seem to be some of the places where these prices have come down?
Well, back in December, we learned from the Arbor that prices in the city of Austin were already down from last year until November. Thus, Austin is most at risk only because it saw the highest price increases in 2020 and 2021.
Your report also looks at the energy industry, which is big business here in Texas. What do you forecast regarding the activity and prices for oil and gas?
Well, oil and gas is always difficult because they are very sensitive to what is happening in the rest of the world. The medium and long-term trend will be around $80 per barrel. And what exactly happens depends largely on the global economy, which worries us about any continuation of hostilities or aggravation of hostilities in Ukraine by Russia. This is how the zero-COVID policy — and now its easing — operates in China. In addition, the rest of the winter and Europe’s limited energy will have a huge impact on oil prices. Thus, our medium-term and long-term forecast is as follows: from 80 to 100 dollars. And these are just the big scenarios we see on the horizon. So, they are white swans, but we don’t know exactly how they will behave.
If we called you about this time in a year, do you think we would view 2023 as a recession year for Texas, or would we be more or less stable?
Again, that’s how everything else happens. So the really important factor that I missed is how inflation affects the Fed. They raise the stakes. And now, you know, they get a soft landing? Will we end up seeing a recession because they are raising rates too much? Or do we continue? Worst case scenario, if they haven’t raised rates enough, we’ll still have high inflation, and then something else will cause a recession, and then we’ll have both high inflation and high unemployment. This is exactly the scenario that the Federal Reserve is thinking about and that they are absolutely trying to avoid.
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