Local Economist Predicts Slower Economy and Housing Market

Houston's housing market has been strong, unlike the national market. But one local economist says until now Houston escaped the national trend of a slowing economy and a weak housing market. but the coming year will bring a downturn in the local economy. Houston Public Radio's Laurie Johnson reports.

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The national economic slowdown is here, according to Barton Smith, a professor of economics at the University of Houston. Smith says the outlook is that the slowdown is not over, but it's also not as bad as some have predicted.

"Even though we're saying with a high degree of confidence that we don't see a recession around the corner, we expect things to remain relatively sluggish for a while."

Smith says he expects to see more frugal consumer spending over the next couple of years. But he says, locally, most of the impact will fall on the housing market. He predicts home prices will go flat for the next 12-18 months.

"If you look at the first three quarters of 2006, home prices in Houston are actually up a little bit more than they were last year. So we're bucking the trend right now. We don't expect that to continue. What we said last May was that we think that the housing market correction will be much milder in Houston than in other parts of the country. But that doesn't mean that we'll be totally immune to it."

The 2005-2006 housing market remained strong in Houston for a couple of reasons. The energy sector provided strong stimulus locally. But that industry is expected to slow somewhat as well, meaning the loss of upstream energy job growth. The other factor in the unusually strong housing market was the sudden jump in the local population.

"There were a lot of people that moved from New Orleans and moved from east Texas that were homeowners, they had a substantial amount of wealth, they came to Houston and they didn't stay in FEMA rental housing -- they bought homes. And so, last year Houston experienced an increase in population greater than we have ever seen in Houston's history in a one-year time period. Well that's not repeating itself again, obviously."

About 74,000 new homes and apartments were built in the Houston metro area over the last year. Smith says builders will have to slow down home starts to keep the market from collapsing. And he says families that are in apartments or who don't have the best credit will find it increasingly difficult to buy a home. Laurie Johnson, Houston Public Radio News.

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