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Dallas Fed: Current Conditions Support Higher Texas Home Prices

Housing market no longer a drag on Texas economy, says Dallas Fed's Southwest Economy

For immediate release: September 12, 2012

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy includes articles on the Texas housing market, regional savings and loans, and Mexico’s implementation of the Basel III capital standards.

Find the third quarter 2012 issue at: /en/research/swe/index.aspx

Shrinking housing inventories in Texas mean current conditions support higher prices in the Texas housing market, and all indicators for Texas suggest that prices are on the upswing, according to business economist D’Ann Petersen in “Texas Housing Market Finally Building a Solid Recovery.”

Housing inventories below 6.5 months are historically consistent with rising home prices, Petersen notes. Texas inventories of single-family homes are at 5.5 months of supply at the current sales pace.

Apartment demand in Texas also has been up since 2010, leading to rapidly rising rents in Texas’ major metro areas, Petersen states. Anecdotal evidence from Dallas Fed business contacts indicates apartment rental rates are high enough in some metro areas to push renters or potential renters into the single-family market.

In addition, Texas residential construction has emerged from the deepest downturn in recent history, Petersen says. Tight new-home inventories and low apartment vacancies mean construction levels should continue rising if current demand is sustained.

“With the uptick in construction in the first half of the year, even a modest increase in the level of new home and apartment construction in the remainder of 2012 would mean an additional stimulus that was missing from the state’s economy in 2011,” Petersen writes.

In “Eleventh District Savings and Loans Outperform Industry Nationwide,” assistant vice president Ken Robinson finds the healthy regional economy in the Eleventh Federal Reserve District—Texas, northern Louisiana and southern New Mexico—has helped savings and loans (S&Ls) in the Eleventh District outperform their national counterparts.

Profitability of S&Ls, as calculated by return on assets, declined sharply both regionally and nationally beginning in 2007, according to Robinson. However, S&Ls within the Eleventh District have recovered, earning an annualized return on assets of 1.5 percent in first quarter 2012, compared with 0.98 percent earned nationally.

“Far from its volatile past, the regional S&L industry is progressing in key performance measures and can expect to continue its impressive run if the Eleventh District economy remains relatively healthy,” Robinson writes.

In “Mexican Banks Get Ahead of New Global Capital Standards,” business economist Edward C. Skelton says Mexico is already on pace to be one of the first countries to comply with the Basel III capital standards, the third set of international rules central bankers and financial system regulators have agreed to implement since the initial Basel Accord in 1988.

Mexico has announced it will install the Basel III standards by 2013, Skelton states.

The new rules require banks to triple the amount of core capital held in reserve. Current Mexican capital requirements are already consistent with Basel III standards, and no Mexican banks are expected to need additional capital or to change their balance sheet structure.

“Mexico’s capital adequacy standards offer a striking example of the country’s financial modernization,” Skelton writes.

This issue of Southwest Economy also features an “On the Record” conversation with the George Washington University associate professor Stephanie Riegg Cellini on two-year for-profit colleges and a “Spotlight” article on toll road growth in Texas.


Media contact:
Alexander Johnson
Phone: (214) 922-5288