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DALLASFED
FOURTH QUARTER 2014

Southwest
Economy

}

Single-Family Housing Squeeze
Eases in Texas; Multifamily Soars
PLUS
ffProducers, Refiners View Strategies to Trim Texas’ Glut
of Ultralight Condensate Oil

ffOn the Record: Bankers Reengage in Housing as
Purchasers Confront Budget-Busting Prices

ffSpotlight: NAFTA at 20: Shortcomings Suggest Trade
Agreement Alone Isn’t Enough

PRESIDENT’S PERSPECTIVE

is a dynamic
}Texas
economic laboratory in
which growing pains are
evident. Agile leadership
is needed in Washington
to help address the issues
restraining activity here.

exas’ economy is expansive, with greater growth
in output, exports and job creation than the nation. Employment through the first 11 months
of the year rose at a 3.6 percent annualized pace,
compared with a 2.1 percent rate for the nation. That translates into 375,100 jobs added through November, more than
during all of last year, when employment grew at a robust
2.7 percent.
Sam Houston, the Republic of Texas’ first president in
1836 and later the new state’s governor, had an abiding faith
in Texas that he said lay in its abundant “natural advantages.” It’s unlikely that Houston had a hint of the rich geological resources underneath his feet—it wasn’t until 1894 that
the state’s first economically significant oil discovery was
made in Corsicana when the city began drilling for water.
Today, shale energy exploration has renewed attention
on this abundant natural advantage, while contributing to
the state’s economic expansion and to some unexpected
outcomes. Oil production has nearly doubled in Texas the
past five years, helping create an oversupply of an ultralight
crude oil called condensate. As Jesse Thompson writes in
this issue of Southwest Economy, the Eagle Ford Shale in
South Texas accounts for more than one-fifth of the nation’s
total condensate supply. A comprehensive, market-responsive policy addressing a federal ban on crude oil exports
that limits condensate sales abroad would help ensure the
health of this vital Texas economic contributor. Moreover,
recently declining oil prices underscore the importance of
energy resources to our state and country.
Our state’s natural advantages have also helped propel
a boom in the Texas multifamily real estate market. Laila
Assanie notes in this issue that while multifamily projects
abound, single-family housing starts have been slow to
recover from the Great Recession. This unusual outcome—
the product of lending policy constraints—has been unprecedented house price increases in a market accustomed
to more steady appreciation.
Texas is a dynamic economic laboratory in which
growing pains are evident. Agile leadership is needed in
Washington to help address the issues restraining activity
here. Ultimately, as the economic data show, the nation
benefits when the Texas engine can help drive overall performance. That makes the stakes particularly significant at a
time when the U.S. is regaining its economic footing.

Richard W. Fisher
President and CEO
Federal Reserve Bank of Dallas

Single-Family Housing Squeeze
Eases in Texas; Multifamily Soars
By Laila Assanie

}
ABSTRACT: Single-family home
sales in Texas—constrained
by steadily rising prices,
tight bank lending standards
and insufficient new-house
inventory—should gain traction
in 2015. A booming apartment
market moderates slightly
amid still-elevated construction
activity, occupancy rates and
rents.

he Texas single-family housing
market has lost some of the
rapid momentum attained
over the past two years. Home
sales and new-home construction
increased at double-digit rates in 2012
and 2013 as strong job growth and rising
incomes drew new residents to the state.
Although economic and population
expansion remain robust, growth in
home sales turned relatively flat in 2014
after the market experienced record-high
prices, depleted existing-home inventories and declining affordability.
The lean inventories along with
a strong Texas economy have spurred
demand for new homes. However,
persistent labor shortages, low lot supply, tight lending for land development
and higher input costs have hindered
construction. As a result, new-home supply trails demand, leading to rapid price
appreciation.
In turn, affordability has declined,
leaving entry-level buyers—typically
accounting for an outsized share of
Texas home purchasers—priced out of
the market. However, easing lending
constraints indicate construction of new
houses could increase in 2015.
For now, demand has shifted to
the multifamily market. The apartment market has faced similar building
constraints—labor shortages and higher
construction costs. But a strong appetite
for apartments, supported in part by a
favorable financing environment, has
driven up construction and sent rents
and occupancy to multiyear highs.

Rapid Home Price Gains
Texas has a vast supply of land and
relatively few building regulations, typically allowing construction to respond
quickly to demand and limiting price
swings relative to what other large states

experience. For example, during the U.S.
housing boom, Texas recorded modest home price appreciation even as
prices nationwide reached record levels.
While home prices in Texas advanced
3.6 percent in 2004 and 6 percent in
2005, nationally they rose 10 percent in
both years.1 Similarly, Texas prices were
relatively restrained when the national
housing market peaked and values collapsed.2
Things have played out differently
during the housing recovery, with Texas
price increases outpacing those nationally. In 2012, Texas saw a 6.9 percent
price gain, compared with a 5.4 percent
increase for the U.S. In 2013, the state at
7.4 percent was close to the nation’s 7.7
percent gain.3
The rapid Texas increase pushed
home prices to record levels. In the third
quarter, prices stood 18.7 percent above
where they were in fourth quarter 2007—
the high before the housing bust. U.S.
prices remain 6.2 percent below their
prerecession peak, reached in first quarter 2007. Measures such as the S&P/Case
Shiller index and data from the Multiple
Listing Service (MLS) show a similar pattern of less volatility in Texas home prices
during the U.S. housing boom–bust
period, but an uncharacteristic surge
during the recovery (Chart 1).
All indicators point to a slowing
pace of appreciation in 2014—on average. Texas home prices increased 6.6
percent (annualized) through the third
quarter, according to Federal Housing
Finance Agency data (Table 1). Similarly,
the real median home price was up an
annualized 4.8 percent through October,
compared with a 6.7 percent increase
the year before. Anecdotally, housing
consultants and sales agents report
buyers are increasingly resistant to price
increases.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

Chart

Improved Demand
Texas Existing-Home Median Price Surges in Recovery

Real dollars (thousands)*

280
260
240

U.S.
209.8

220
200
180

Texas
184.9

160
140
120
100

2000

2002

2004

2006

2008

2010

2012

2014

*Four-month moving average, seasonally adjusted.
SOURCES: Multiple Listing Service; seasonal and other adjustments by Federal Reserve Bank of Dallas.

Table

Texas Home Price Gains Slowing
2014 year to date
annualized

2013

Texas

U.S.

Texas

*FHFA House Price Index (Q3)

6.6

4.4

7.4

U.S.
7.7

**S&P/Case Shiller Index (Sept.)

5.9

2.8

10.2

13.4

MLS real median sales price (Oct.)

4.8

4.7

6.7

8.1

*Data are quarterly.
**Dallas is used to approximate Texas.
SOURCES: Federal Housing Finance Agency (FHFA); S&P/Case Shiller; Multiple Listing Service (MLS).

Chart

Home Sales Rise, Inventories Fall to Record Low Levels

Index, January 2004 = 100*

140

Months of inventory**

Texas existing-home sales

130

120

110
100

90
5

80
Texas inventory
of unsold homes

70
60
50

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*Six-month moving average, seasonally adjusted.
**Seasonally adjusted.
SOURCES: Multiple Listing Service; seasonal and other adjustments by the Federal Reserve Bank of Dallas.

Shrinking inventories, especially
since 2012, significantly figure in the
price run-up. Following the national
bust, Texas home demand fell to levels
not seen since 2002 as hiring slowed
and sliding home prices kept cautious
buyers on the sidelines. A temporary
tax credit program provided a reprieve
in 2009 that gave way to another sales
drop the following year (Chart 2). Texas
existing-home sales began improving in
2011, rising 1.7 percent amid tight credit
conditions and new mortgage lending
regulations that damped activity among
first-time and lower-income buyers.
A booming Texas economy, in part
due to a flourishing energy sector, subsequently attracted businesses and workers
to the state and reinforced demand.4
Existing-home sales rose 15.2 percent in
2012 and 16.2 percent in 2013, the best
year for Texas in terms of overall sales
since the onset of the U.S. housing bust
in 2006.
Inventories of existing homes were
quickly depleted, falling in mid-2012
below the six-month threshold thought
to signal adequate housing stock. Below
that level, a “seller’s market” prevails as
buyers bid up prices for what’s available.
Inventories declined throughout 2012
and 2013, falling to a record low of 3.6
months of supply in December 2013 and
holding steady at that level for most of
2014. Inventories in all of Texas’ major
metros are at or near record lows.5 In
October, inventories stood at 2.3 months
in Dallas, 2.6 months in Fort Worth, 2.7
months in Houston and Austin, and 4.3
months in San Antonio. U.S. inventory
in October was just above 5 months of
supply.
Bad weather and rising mortgage
interest rates crimped sales in the second
half of 2013 and into early 2014.6 Sales
picked up in spring 2014. Through the
first 10 months of the year, existing-home
sales in Texas were 2.4 percent ahead of
year-ago levels—a much lower rate of
increase than in 2012 and 2013.

Tight Credit, Supply Limitations
Homebuilding activity (as measured
by single-family permits issued) is not
only well below its prerecession peak but

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

also lower than the levels seen in 2002
and 2003, before the national housing
boom. Among factors constraining building is a low supply of vacant developed
lots, tight credit for land development,
escalating land and materials costs and
labor shortages.
After the Texas housing market
peaked in late 2006, homebuilders sharply reduced new construction as demand
weakened and inventories ballooned. Vacant developed lots (improved and ready
for building) were at a 6-year supply in
Dallas and nearly 3.5 years in Austin and
Houston in mid-2009 (Chart 3). A 20- to
24-month supply is considered equilibrium, when neither builders nor developers have a pricing advantage. Financing
for further land development—including
in newer, high-demand areas—was tight
from 2009 to 2011, hampering building.

Tight Lot Supply
During the initial phase of the
housing recovery, with lots in adequate
supply, single-family permits issued
throughout Texas grew from 63,876 in
2011 to 77,472 in 2012, or 21.3 percent.
The permit growth rate slowed to 15.9
percent in 2013, reflecting bureaucratic
delays due to cuts in local government
personnel and shortages of skilled construction workers, some of whom had
moved on to oil fields where the shale
energy boom was fully underway. Meanwhile, the supply of buildable lots shrank
in most major metros.
Lot supply was below the equilibrium level in Austin and Houston in
third quarter 2014 and near the twoyear threshold in Dallas, Fort Worth
and San Antonio, as seen in Chart 3.7
Tight lot supply and builders’ cost
pressures have restricted the range of
single-family housing types offered for
sale, limiting new-home construction
growth.
The Federal Reserve’s senior loan
officer survey results show that from
2008 to 2010, a higher share of respondents (loan officers) nationwide were
tightening credit standards for commercial real estate loans, which include
construction and land development
loans for residential and nonresidential
structures.

Chart

Vacant Developed Lot Supply Moves Below Equilibrium

Months of supply

80
Dallas

Fort Worth

60
50
Austin

40
30
20

San Antonio
24 months

Houston

10
0

2009

2010

2011

2012

2013

2014

NOTE: A 20-to 24-month supply of vacant developed lots is considered equilibrium.
SOURCE: Metrostudy.

Declining Affordability

The trend gradually reversed
beginning in 2011, with an uptick
among those reporting loosening credit
requirements for these loans. More recently, in third quarter 2014, the survey
suggests financing for construction and
land development loans became significantly easier to obtain.8 Some industry
participants confirm that bank willingness has further improved (see “On the
Record,” p. 8).
Moreover, labor shortages have
lengthened the time it takes to build a
home and reduced the number of units
constructed. In Houston, some builders have placed cameras and armed
guards at jobsites to prevent poaching of
employees. Thus, single-family building remains soft even though permits
were up 9.4 percent year to date through
October compared with the same period
in 2013.

Table

A downside to the unprecedented
run-up in Texas house prices is declining
housing affordability over the past three
years. Affordability is at multiyear lows in
most major metropolitan areas, according to the Housing Opportunity Index, a
measure of the percentage of homes sold
that are affordable to the median-income
family.9 This share has declined over time
across all Texas metros.
More than 70 percent of homes
sold in Austin, Dallas, Fort Worth and
Houston in third quarter 2010 were
considered affordable (Table 2). Despite
relatively low interest rates and rising
incomes, the share plunged to a near
seven-year low in Dallas, Fort Worth,
Houston and San Antonio in third quarter 2014.
Still, the Texas markets—with a median sales price of $184,942 in October

Housing Affordability Drops Sharply in 2014
(Percentage of homes sold, affordable to median-income family)
Area

2010:Q3

2012:Q3

2014:Q3

U.S.

72.1

74.1

61.8

Austin

73.9

73.3

61.2

Dallas

71.3

71.7

55.0

Fort Worth

79.8

80.8

64.6

Houston

72.5

70.5

55.5

San Antonio

68.7

73.3

57.2

Los Angeles

40.3

44.1

16.3

New York

22.6

28.5

21.6

SOURCE: National Association of Home Builders-Wells Fargo Housing Opportunity Index.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

2014, according to MLS data—compare
favorably to the national average of
$211,819. The proportion of Texans who
can afford homes in the state’s big cities
also remains significantly larger than the
share in Los Angeles and Orange counties, 16.3 percent, and New York, 21.6
percent.

Entry-Level Buyer Squeeze
Entry-level buyers have been feeling
particularly squeezed: Mortgages are
difficult to obtain, while home prices are
rising. New guidelines from government-

Table

sponsored mortgage enterprises Fannie
Mae and Freddie Mac, effective Dec. 1,
ease lending standards and clarify guidelines for lenders. The revamped rules
eliminate Fannie Mae’s requirement that
a borrower put 20 percent down and
are likely to motivate lenders to relax
underwriting rules. This will allow lowand moderate-income borrowers greater
access to credit, speeding up the review
process and stimulating the housing
industry.
Meanwhile, developers and builders
have shifted away from entry-level hous-

Recent Home Starts Reflect More Expensive Product*
Percent of homes priced under $200,000
2009:Q3

2012:Q3

2014:Q3

Austin

Dallas

Fort Worth

Houston

San Antonio

Percent of homes priced from $250,000-$399,000
2009:Q3

2012:Q3

2014:Q3

Austin

Dallas

Fort Worth

Houston

San Antonio

*Starts data are annualized.
SOURCE: Metrostudy.

Chart

Share of Entry-Level Homes Sold Drops Markedly

(Existing homes priced below $200,000 as a percentage of all existing-home sales)

Percent

74.2

2014

70
60

83.1

2010

53.8

69.2
58.8

51.4

48.4

70.3

65.7

64.4

55.6

Multifamily Recovery

30
20
10
0

Austin

Dallas

Fort Worth

Houston

San Antonio

Texas

*2014 estimate.
NOTES: Data represent Multiple Listing Service housing activity only. Residential data include single-family homes, townhouses and condominiums.
SOURCE: Real Estate Center at Texas A&M University.

ing toward a higher-priced, move-up
product for two reasons. First, qualifying
entry-level buyers for mortgages has
been difficult and, second, it’s easier to
recoup increasingly pricey material and
labor costs with a more expensive offering.
Moreover, the scarcity of lots and
homes has enabled builders to charge
higher prices, while the number and
proportion of under-$200,000 homes has
shrunk.
In San Antonio, traditionally among
the most affordable new-home markets
in the country, the share of home starts
for units priced under $200,000 plummeted from 65 percent in 2009 to 36
percent in 2014 (Table 3).10 Over the same
period, starts of $250,000–$399,000 units
increased from 15 percent to 27 percent—a pattern repeated in other major
metropolitan areas in Texas.
Along with the decline in share, the
absolute number of home starts—particularly homes priced under $150,000—
is down notably from 2009, when the
housing market was in a fledgling stage of
recovery.
A few builders are branching out
into high-density products such as townhomes, patio homes or detached condos
to meet growing demand from first-time
or moderate-income buyers looking for
less-expensive options.
Some entry-level buyers have
turned to the existing-home market,
where an estimated 56 percent of homes
sold throughout Texas this year were
below $200,000, according to MLS data
compiled by the Texas A&M Real Estate
Center (Chart 4). The proportion of such
homes sold relative to the overall market
held relatively steady at around 70 percent from 2007 to 2010 before rapid appreciation took hold the past three years,
especially in Austin, Dallas and Houston.

Multifamily construction has been
off the charts since bottoming out in late
2009, especially when compared with
single-family activity (Chart 5). Texas
apartment permits—a measure of multifamily building activity—rose rapidly
from 2010 to 2012, reaching prerecession
levels by the end of 2013. The biggest

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

jump, 73 percent, occurred between 2011
and 2012.
Multifamily building activity
achieved a new high in early 2014 before
moderating. Total permits covering
54,773 individual apartment units were
issued through October, up 20 percent
from the year-ago period. At the end of
third quarter 2014, about 28,000 units
were under construction in Dallas–Fort
Worth, 32,600 in Houston, 12,000 in Austin and 9,000 in San Antonio.11
As the state’s economic recovery
took hold in 2010, falling house prices
along with an improving job market and
tight credit redirected demand from
single-family to multifamily product.
Heightened leasing activity led to a
steady decline in apartment vacancy
rates in Texas’ major metropolitan areas
beginning in 2010, pushing nominal
rents to well above prerecession highs
in all major Texas metros by early 2012
(Chart 6).
Vacancy rates continued edging
lower in third quarter 2014 in major
metropolitan areas even as new apartments came to market.12 The expanding
Texas economy and tight credit conditions that deter would-be homebuyers
from making a purchase are further
boosting apartment demand.
Data from apartment market analyst
MPF Research confirm the strong leasing
fundamentals in Texas. In third quarter
2014, occupancy of rental units in Dallas
and Houston was tight at 95 percent—a
13-year high for both markets. Occupancy in Austin was even higher, at
95.7 percent, while San Antonio, at 93.6
percent, wasn’t far behind. Austin, Fort
Worth and Houston ranked among
the the top 20 U.S. markets in terms of
year-over-year rent increases in the third
quarter.

Outlook: Moderate Growth
Despite sound economic fundamentals—including a booming Texas
economy, high in-migration and rising
incomes—growth in home sales and
single-family construction activity has
been modest in 2014. Entry-level buyers
have been left out of the market amid
rapidly rising prices and credit constraints. Thus, improved access to credit

Chart

Multifamily Construction Leads Residential Recovery

Index, January 2006 = 100*

200

Texas multifamily

180
160

152.2

140
120
100
80

Texas single family

57.9

40
20
0

2006

2007

2008

2009

2010

2011

2012

2013

2014

*Five-month moving average of building permits.
NOTE: Last data point is October.
SOURCE: Census Bureau.

Chart

Apartment Market Fundamentals Strong in Texas Metros

Rent index (dollars/unit/month)

1,100

Austin

1,000

Houston

900

Dallas

800

San Antonio

700

Fort Worth

600
500
400

2006

2007

2008

Metro
Austin
Dallas
Fort Worth
Houston
San Antonio

2010:Q3
6.1
7.8
8.2
10.1
7.0

2009

2010

Vacancy rates (percent)
2011:Q3
2012:Q3
2013:Q3
4.5
4.1
4.2
6.2
5.7
4.9
7.2
6.1
5.9
8.5
6.7
5.9
5.9
5.2
5.9

2011

2012

2013

2014:Q3
4.0
4.8
5.3
5.2
6.2

2014

NOTE: Data are for third quarter 2014.
SOURCE: CBRE Econometric Advisors.

and an expanding supply of new homes
for first-time and lower-income buyers
are essential for the state’s housing market to strengthen in the coming year.
Some builders are expanding
their offerings aimed at the entry-level
buyer. Moreover, of the anticipated easing of mortgage-lending rules should
spur modest housing demand growth
in 2015. Headwinds include rising
mortgage rates that could damp sales
activity.
On the multifamily side, brisk
construction activity is beginning to
moderate and will likely slow further.
Occupancy levels and rent growth will

cool as units under construction are
completed. However, continued healthy
economic and population expansion
and diminished housing affordability
combined with a steadily declining Texas
homeownership rate should continue
to generate a strong appetite for apartments. That will keep both occupancy
and rents at or above the long-run average through 2015.

Assanie is a business economist in the
Research Department of the Federal
Reserve Bank of Dallas.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

(Continued on back page)

ON THE RECORD
A Conversation with Mark G. Dotzour

What do bankers tell you is behind
their reluctance to lend?

Bankers Reengage in Housing
as Purchasers Confront
Budget-Busting Prices

There are several reasons new-home
construction has not increased sufficiently to meet demand. Homebuilders
and land developers have historically
relied heavily on banks for acquisition,
development and construction loans to
finance their operations. These funds
became very scarce in 2009–11.
In 2014, the situation changed;
homebuilders tell me that they can get
construction loans again. Money, however, remains scarce for land developers.
Banks across America lost a lot of
money from land development loans
that went bad in the Great Recession, so
they have been reluctant to reengage in
this sector. New international banking
oversight regulations—the so-called Basel III rules—have yielded a new name
for these loans: “high-volatility commercial real estate exposure.” Banks that
make these loans must have significant
capital set aside as a backstop to possible losses. There are exemptions for
loans for multifamily development, so it
is becoming easier to get loans for new
apartments. It isn’t so easy for developers to get funding for new subdivisions.
The value of loans outstanding for
acquisition, development and construction has declined substantially, Federal
Deposit Insurance Corp. data show. At
the onset of the recession and real estate
collapse, there were $631.8 billion of
such loans nationally. The total fell to
$206 billion by third quarter 2008 at the
height of the recession. Just in the past 12
months, such lending has begun to expand again. In third quarter 2014, loans
increased to more than $230 billion.
So the trend is positive, but total
credit outstanding to builders and developers is still less than half of what we had
before the downturn.

Mark G. Dotzour is chief economist and director of research at the
Real Estate Center at Texas A&M University. Dotzour, an observer of
residential and commercial real estate trends, discusses why Texas
home prices are hitting new highs, the prospects for new construction
and housing’s overall impact on the Texas economy.
Q. Single-family home prices are
rising very quickly in Texas, while
new construction appears restrained. What accounts for this?
Homebuilding in Texas, which
abated during the Great Recession, is
rebounding as homebuyers become
more optimistic. Still, new home
construction is unable to keep up with
demand. Consequently, there are
not enough homes for sale. There is
also a shortage of single-family lots in
desirable locations in pockets across
Texas. As a consequence, lot prices are
increasing dramatically. This causes
the price of new homes to rise as well.
Finding a new home under $200,000 is
getting difficult.
That said, research at the Real Estate
Center has shown that only one variable
is consistently useful explaining home
price appreciation in Texas—months’
supply of inventory available for sale.
We found that the Texas residential real
estate market is in equilibrium when
there is a 6.5-month supply of homes for
sale. In the past, when the market was
balanced near that equilibrium, home
prices increased at a moderate pace.
The months’ supply of new homes
across all of Texas has been below
6.5 months since November 2011. In
January 2014, the months’ supply hit a
historic low of 3.3 months. Statewide, the
inventory has been below four months
since September 2013. The supply situation of single-family homes available for
sale has never been this low for this long.

Q. Even with the state’s population growth, how great is the risk
of overbuilding once things turn
around? How does the Texas market differ from others?
Texas has a history of being able
to outbuild even the strongest demand
trends. However, this is not the case
today. Low inventories result in higher
prices as buyers feverishly compete
to purchase a home they want. It is
not uncommon for a house to draw
multiple offers and ultimately to sell
for a price higher than the listing
price. Single-family home prices have
increased 25 percent in just the past
four years. The median price of houses
sold in Texas was $191,700 in July 2014,
up from $179,400 a year earlier. In July
2010, it was $154,400.
When the national housing
market was red hot in 2005–07 and
prices increased at double-digit rates
in California, Arizona and Florida,
prices in Texas rose only 2 to 4 percent.
I would get many phone calls asking
what was wrong with the Texas housing market. The fact is that there was
nothing wrong with the Texas market.
Low price appreciation was the result
of a high inventory of homes for sale.
At that time, thousands of homes were
being built and our inventories stayed
high.

Q. You’ve said that it’s difficult for
developers to get the money to turn
raw land into buildable parcels.

Q. Are there other ways to
finance homebuilding-related
activities?
As with any other marketplace,
there is supply and demand for money;
people with money will find a way to
get it to people who have a use for it. In
recent years, due to the dearth of bank
debt financing available for single-

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

across America lost a lot of money from
}Banks
land development loans that went bad in the
Great Recession, so they have been reluctant to
reengage in this sector.
Texas is still in a rebuilding phase, and
it could take years before there are sufficient workers to meet demand. Home
prices in Texas will continue their upward spiral until more supply can come
online. This will not happen overnight.

family lot development, publicly traded
homebuilders have become big players
in land development in Texas and across
the country. They get their funding from
the sale of common and preferred stock
and the corporate bond market. They
have a distinct competitive advantage
over smaller builders and developers
that don’t have access to Wall Street debt
and equity funding.

Q. Are labor shortages a problem
and, if so, are wages rising in
response to worker scarcity? Is it
contributing to the rising cost of
finished units?
Builders face other problems in addition to funding. A serious labor shortage is plaguing the Texas homebuilding
industry. When the housing market
crashed in 2008, many construction
workers returned to their home countries. Others in recent years have gained
employment in the energy industry.
Consequently, there just aren’t enough
workers to support higher levels of newhome construction.
It’s hard for homebuilders to keep
job-site superintendents as well. I’ve
heard numerous stories of competing
builders going to a competitor’s job site
and luring away the superintendent with
higher wages and a signing bonus.
Wages in the new-home supply
chain are rising. I know of one firm
that raised wages nearly $2 per hour
and is now offering “a quarter for each
quarter”—a 25-cent-per-hour wage
increase, in addition to higher pay, for
each three months that an employee
stays with the company. The supply
chain in the homebuilding industry in

Q. Assuming supply-side issues are
resolved and there are more homes
on the market, do you have any
concerns regarding the demand for
housing?
The demand for single-family
homes has been increasing since 2011.
Buyer psychology changed dramatically,
which was evident when the Wall Street
Journal reported in October 2012 that
home prices in once-depressed Phoenix
rose 18.8 percent from a year earlier.
Continued reports of price appreciation
since then have rekindled enthusiasm
for homeownership.
The upswing in price appreciation is
not uniform across the country. In states
that allow nonjudicial foreclosure, the
overhang of troubled homes was cleared
efficiently and quickly, causing prices to
turn up almost immediately. Conversely,
states that require judicial foreclosure
have been slow to clear. In those states,
buyers are still concerned about the
shadow inventory of troubled homes
that will ultimately have to be sold.
But the fundamental reasons people want to buy or sell a home are not
impacted permanently by recessions or
credit crises. When people get married,
have a child, have a second child, get a
promotion, get a divorce, retire, lose a
spouse or live next to an annoying dog,
they want to move. The Great Recession
caused a lot of people to postpone making a move. This pent-up demand has
overwhelmed existing supply.
There has been some question
about whether the millennial generation
[today’s young adults] will ever want to
buy homes. There is speculation that
they will want to live in urban locations
and be permanent renters. I personally

don’t agree. I think these young people
have responded to the recession by
postponing decisions just like everyone
else. Some have postponed moving out
of their parents’ house. Others have
postponed getting married, and some
have postponed having children. As
these younger people get married and
have children, I expect their buying
behavior will look a lot like previous
generations.

Q. Higher house prices should be
good for Texas homeowners. Do you
see any downside to the rapid appreciation experienced here?
Rapidly increasing home prices are
fun for existing homeowners. It’s great to
watch the equity in your home increase
each year. And we know that when
people feel richer, they are more likely
to buy things and create jobs. However,
there is a downside.
Everyone knows Texas is a great
place to do business. Texas businesses
compete successfully in the global
economy. Part of the reason for their
success is that our cost of living has
been reasonable and the price of our
houses is moderate as well. The lower
cost of living allows companies in Texas
to hire workers at lower salaries than
employers in other parts of our country.
By keeping costs low, Texas companies
can successfully compete in the global
market. But that calculus could change if
the price of homes in Texas continues to
increase rapidly for several years. If they
get too expensive, employers will have to
increase pay to make up for the higher
costs of living, which will make them less
competitive.
I feel that this is one of Texas’ most
pressing economic development issues.
We need to build more homes to keep
the supply high enough to prevent
prices from getting so expensive that
new workers choose not to relocate to
Texas. We are nowhere near that level of
construction today.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

Producers, Refiners View Strategies to Trim
Texas’ Glut of Ultralight Condensate Oil
By Jesse Thompson

}
ABSTRACT: Hampered by
the federal oil export ban,
producers are seeking
alternative means to bring to
global markets the burgeoning
supplies of ultralight
condensate oil drawn from the
Eagle Ford Shale region of
South Texas.

he shale revolution has
vastly boosted supplies of the
ultralight crude oil known as
condensate, particularly in
the Eagle Ford Shale region of South
Texas.
Condensate is used to produce a
variety of products, often by combining
it with heavier types of oil. Supplies have
overwhelmed U.S. firms’ capacity to put
the condensate to use.
A U.S. ban on oil exports—including condensates—largely prevents the
sale of condensate to foreign companies. Drilling companies, refiners and
petrochemical producers have employed
various ways to deal with the condensate
surplus, with some producers skirting
the export ban. Regulators have taken
notice, too, allowing limited condensate
exports by two firms.
Still, much uncertainty remains in
the marketplace over what form exports
of condensate will take.

Defining Condensate
Condensate is an ill-defined family of substances, often referred to as
ultralight crude due to its low density.1
Heat and pressure underground keep
the substances gaseous, but when they
come out of the well, they condense into
a liquid, much like water on the outside
of a cold drinking glass.
The American Petroleum Institute
uses an index to indicate how dense various oils are relative to water—called API
gravity: The higher the API, the lighter
the oil. Generally, condensate API gravity
exceeds 50. By comparison, West Texas
Intermediate crude oil has an API of 39,
while heavier crudes such as Canadian oil can have an API of 25 or lower.
Condensates occupy the border between
what are usually referred to as natural
gas liquids (NGLs), such as ethane and
propane, and crude oil.

Increasing Supplies
The Eagle Ford Shale accounted
for 1 percent of the nation’s oil production in 2008; the share rose to more than
17 percent by mid-2014. One-sixth of
new barrels produced between 2009
and 2013 were an ultralight type called
lease-condensate, according to the most
recent data from the Energy Information
Agency (EIA).2 Over that period, Texas
was responsible for 72 percent of U.S.
condensate production growth.
The Eagle Ford produced 83 million
barrels of condensate—27 percent of the
U.S. supply and 52 percent of the Texas
supply—in 2013. The sudden glut of ultralight liquids, which sell at a discount,
drove South Texas producers to focus
their drilling efforts on areas rich with
heavier oils (Chart 1).
Thus, while oil production growth in
the Eagle Ford remains healthy, condensate growth has fallen off, from 70
percent of total Eagle Ford oil production
in 2009 to 20 percent in the first half of
2014. With such an unexpectedly rich
resource of condensate, producers are
seeking any route they can find to deliver
it to customers.
A primary use for condensate is as a
diluent. Heavy crude producers want to
sell their product to refiners for processing but often need to dilute their oil with
something lighter for transport and delivery. A barrel of heavy crude with a low
API can be blended with condensate that
has a high API to create oil with a gravity
somewhere in between.
Refiners convert the diluted barrel
into a variety of products. Some of the
condensate that goes into a barrel of oil
comes through the refining process little
changed and is shipped back to heavy
crude producers to repeat the process.
This creates a loop in which the value of
the condensate is based largely on the
needs of heavy crude producers, as much

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

Chart

Texas’ Eagle Ford Drives Condensate Production

Annual production, index, 1981 = 100

Barrels per day (thousands)

300

430
380
330

Permian Basin

250

Eagle Ford

200

280
150
230

Texas
100

180
130
80
1981

U.S.

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

NOTE: Permian Basin and Eagle Ford production for 2014 is based on January–September data.
SOURCES: Energy Information Agency; Texas Railroad Commission.

as the products derived from condensate
itself. U.S. heavy crude production isn’t
growing, according to EIA estimates, but
as long as that loop between heavy crude
producers and refineries is expanding
globally, international demand for diluent will grow with it.
Condensate is also used in petrochemical plants. Many use condensate
to make the chemical building blocks
for products such as plastics or car tires.
Foreign petrochemical manufacturers dependent on naphtha—a mix of
substances resembling condensate that
usually comes from refineries—could
be major buyers of U.S. condensate as
they seek to lower their costs to compete
with U.S. companies whose production
is based on low-cost domestic ethane,
an NGL.3
In the refinery, condensate is also
split or processed into several different products. Some goes directly into
diesel and jet fuel, some is blended into
gasoline and some becomes solvents for
industrial applications.
Even with many petrochemical and
refinery uses, there are limits to how
much condensate the U.S. can process.

Depressed Crude Wellhead Prices
The operating rates of U.S. refineries have climbed since the end of the
recession to as high as 90 percent in 2013
and 95 percent in 2014. Along the Gulf

Coast and in the Midwest, the share of
total operable refining capacity in use
has frequently exceeded 90 percent the
past two years. However, those plants
have limited capacity to refine ultralight
crudes. Particularly along the Gulf Coast,
home to almost half of U.S. refining capacity, operators for most of the past 30
years invested in technologies to process
greater volumes of heavier crudes.
From 1986 to 2008, the API gravity of
oils entering Gulf Coast refineries steadily declined from 35 to 27.8. It nearly
recovered to 30 by early 2013 before falling again through the year. New refinery
units along the Gulf Coast and higher
operating rates at refineries on the East
and West coasts will increase the amount
of ultralight crude the U.S. can process
over the next several years. Still, the
capacity in many parts of the U.S. is near
its limit. In those facilities, processing too
light a mix would diminish profitability
because of inefficient refinery use or sale
of a suboptimal product mix (Chart 2).
Oils with an API gravity of 40 or
more (light crudes and condensate) account for almost all U.S. crude production growth, EIA analysis shows. Thus,
imports of similar crudes have fallen to
zero, practically eliminating shipments
from Nigeria and other light crude producers. Imports of heavy crudes with an
API of 25 degrees or less have declined
somewhat but are little changed as a

refinery units along
}New
the Gulf Coast and
higher operating rates
at refineries on the East
and West coasts will
increase the amount of
ultralight crude the U.S.
can process. Still, the
capacity in many parts of
the U.S. is near its limit.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

Chart

Refinery Mix Gets Heavier as Crude Supply Gets Lighter

Millions of barrels per day

API gravity (degrees)

31.5

analysts believe
}Many
it’s inevitable that
ultralight inventories
will continue to rise as
long as the export ban
remains. The trapped
and growing inventories
could lower domestic
light crude prices
relative to their global
counterparts.

Average refinery API
31

12
10

30.5

API >40

6
4

API <35

29.5

2
0

2011

2012

2013

NOTE: Domestic supply calculated as domestic production plus imports.
SOURCES: Energy Information Administration; DrillingInfo; Colorado Department of Natural Resources; Texas Railroad
Commission; author’s calculations.

share of refinery input. Heavy crude
imports are down from nearly 24
percent of all oil that went into U.S.
refineries in mid-2009 to 21.4 percent
in late 2013.
Many analysts believe it’s inevitable
that ultralight inventories will continue
to rise as long as the export ban remains.
The trapped and growing inventories
could reduce domestic light crude prices
relative to their global counterparts. A
further lowering of the price producers
receive at the wellhead would discourage drilling in condensate-rich areas.
However, there is a way around the
export ban.

Export Regulatory Uncertainty
Crude oil cannot be exported, but
refined products can.4 Investing in a
“splitter” is one way around the ban.
Splitters cut the condensate into lighter
and heavier parts that then qualify as “refined” products under the law. Split-condensate can be consumed or exported as
light and heavy naphthas, diesel, kerosene and gas oil. Hundreds of millions of
investment dollars have been committed
to this export strategy (Table 1).5
For example, Kinder Morgan Energy Partners is building a $360 million
complex on the Houston Ship Channel
expressly to store, split and export products derived from Eagle Ford condensate
at a rate of 100,000 barrels per day, with

API 35–40

room to grow. The facility is scheduled
to become fully operational in second
quarter 2015.
Even as planned projects make their
way through engineering, permitting
and construction, the rules governing
condensate may be shifting. The Department of Commerce’s Bureau of Industry
and Security issued a judgment in June
allowing Pioneer Natural Resources and
Enterprise Product Partners to export
condensate.6 The action didn’t overturn
the export ban, nor was it a finding that
condensate differs from crude oil under
the law. It stated that a stabilization
process the two companies employed
(in which NGLs and natural gas are
removed) was sufficient to legally qualify
the material they produced as refined.
The resulting product is not subject to
the export ban.
Indeed, some firms have taken it
upon themselves to export stabilized
condensate from Texas without an export permit, both testing regulators’ will
to enforce the ban and perhaps forcing a
clarification of the rules.7
Following that reasoning, many
firms may rethink the need for a splitter,
while still others continue to review the
decision, hoping to better understand
what exports of condensate might look
like in the near future. The resulting uncertainty may defer some planned Gulf
Coast splitter projects.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

Plant-Condensate Exports

Table

A chemically close substitute for
condensate—plant condensate, also
known as pentanes plus, which comes
from natural gas—provides some clues
regarding the potential impact of increased condensate processing. Rather
than being composed of the lightest parts
of oil, like condensate, pentanes plus
is made of the heaviest parts of unprocessed natural gas.
Pentanes plus has never been
considered crude and has never been
subject to the export ban. It is liquid and
has roughly the same potential uses as
condensate. Net exports of pentanes plus
are a dramatic example of what the shale
revolution has done for the U.S. energy
trade balance. After decades of being an
importer of this fuel, the United States is
now a net exporter, principally to Canada
(Chart 3).
The U.S. exported 50 million of
the 127 million barrels of pentanes
plus produced in gas plants in 2013 (40
percent) and 32 million of the 78 million
barrels produced in the first half of 2014
(42 percent).
The Eagle Ford, which produced 83
million barrels of condensate in 2013, is
on track for 91 million barrels in 2014.
Adding only Eagle Ford condensate
production to total pentanes plus output
would result in a nearly two-thirds
increase in the volume of exportable U.S.
energy products in 2014.

Proposed and Existing Condensate Splitter Projects in Texas

Startup
date

Capacity
(millions of
barrels/day)

Estimated
capacity
(millions of
barrels/day)

Location

2000

Port Arthur

Kinder Morgan Energy Partners–Phase 1

2014:Q4

Houston

Kinder Morgan Energy Partners–Phase 2

2015:Q2

Houston

Company

BASF and Total Petrochem

Trafigura

2015

Corpus Christi

2016:Q1
& Q2

Up to 100

100

Corpus Christi

Castleton Commodities

TBD

Corpus Christi

Magellan Midstream

TBD

100

Corpus Christi

Martin Midstream

SOURCE: Turner, Mason and Co.

Chart

Exports of Natural-Gas-Derived Pentanes Plus Soar

U.S. net exports (millions of barrels)

7
6
5
4
3
2
1
0
–1
–2
–3
–4

Future Determination

’84

’86

’88

’90

’92

’94

’96

’98

’00

’02

’04

’06

’08

’10 ’12 ’14

SOURCE: Energy Information Agency.

The condensate supply glut has
led to swollen inventories, strained
refinery capacity, and likely diminished
drilling in some parts of the country.
Producers continue to face uncertainty
while the export ban remains in place.
But some combination of reduced light
crude production (due to lower prices),
increased refinery capacity and efforts
to skirt the ban should ultimately alleviate the glut.
Producers in the Eagle Ford Shale,
as in other regions, have been attempting to direct condensates to other uses
and shift production to heavier oils as
they await better pricing and word on
whether the U.S. will liberalize or eliminate the oil export ban.

Regardless of what form new export
rules may take, the Eagle Ford continues
to expand the list of energy products
exported from the Texas Gulf Coast.

Thompson is a business economist
at the Houston branch of the Federal
Reserve Bank of Dallas.
Notes
See “Fifty Shades of Condensates—Which One
Did You Mean?” by Rusty Braziel, RBN Energy LLC,
Oct. 22, 2012, https://rbnenergy.com/fifty-shades-ofcondensates%E2%80%93which-one-did-you-mean.
2
For simplicity, lease-condensate is referred to
subsequently as “condensate.”
3
See “Booming Shale Gas Production Drives Texas
Petrochemical Surge,” by Jesse Thompson, Federal Reserve
1

Bank of Dallas Southwest Economy, Fourth Quarter, 2012,
and “Shale Revolution Feeds Petrochemical Profits as
Production Adapts,” by Jesse Thompson, Federal Reserve
Bank of Dallas Southwest Economy, Fourth Quarter, 2013.
4
See “Crude Oil Export Ban Benefits Some … but Not
All,” by Michael D. Plante, Federal Reserve Bank of Dallas
Economic Letter, vol. 9, no. 7, 2014.
5
See “To Split or Not to Split—That Is the Question,” by
Ryan Couture, Turner, Mason and Co., Sept. 8, 2014, www.
turnermason.com/blog/2014/09/08/to-split-or-not-to-split.
6
See “With or Without Splitting? Changing Lease
Condensate Export Definitions,” by Sandy Fielden, RBN
Energy LLC, June 25, 2014, https://rbnenergy.com/withor-without-splitting-changing-lease-condensate-exportdefinitions.
7
See “BHP Billiton to Export Condensate Overseas,” by
Jennifer A. Dlouhy, Fuel Fix, Nov. 4, 2014, http://fuelfix.
com/blog/2014/11/04/bhp-billiton-to-export-condensateoverseas.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

NOTEWORTHY
INCOME: Texas Median Rises 1 Percent, Outpacing National Growth

exas’ real median household income rose 1 percent in 2013 to $51,704, according to the Census Bureau’s American Community Survey. Median income for the nation increased slightly, to
$52,250, but grew at a slower 0.6 percent rate.
Income gains in Texas contributed to a 0.4 percentage-point decline in the poverty rate to 17.5 percent in 2013. The national poverty rate was essentially unchanged at 15.8 percent. Texas was one of only
four states to record a statistically significant poverty rate reduction between 2012 and 2013.
Educational attainment in Texas also improved. Nearly 82 percent of Texans over age 25 had a
high school degree in 2013, up 0.5 percentage points from 2012, and the share of the population with
a bachelor’s degree or higher jumped 0.8 percentage points to 27.5 percent, still below the national
average of 29.6 percent.
Although Texas’ educational attainment, income and poverty were better, its income inequality worsened. The Gini index, a measure of income disparity, rose in 2013. However, the national
index has climbed at a slightly faster pace in recent years, improving Texas’ relative standing. Income
inequality in Texas, as measured by the index, now equals that of the nation.
—Kristin Shepard

AGRICULTURE: Texas Cattle Producers Likely to Report Record Profit

he Texas livestock sector, which accounts for more than 70 percent of state agricultural production,
anticipates record profits this year despite lingering drought conditions. Cattle prices continue
climbing, while input costs—such as corn used for feed—are falling, according to the U.S. Department of Agriculture (USDA).
An expected bumper corn crop in the U.S. is driving down feed prices, while tight cattle inventories
are pressuring beef prices amid strong domestic and international demand. With agriculture and related
economic activities accounting for around 10 percent of state gross domestic product, according to the
Texas A&M AgriLife Extension Service, the Texas economy stands to benefit.
An easing drought, reported by bankers statewide in the Dallas Fed’s third-quarter Agricultural
Survey, is also aiding cattle ranchers. With strength in the livestock sector and in cotton—the state’s No. 1
crop—Texas won’t reflect a projected U.S. farm income decline. Cash receipts are forecast to increase 10
percent for livestock and 15 percent for cotton in Texas this year. Nationally, net farm income is expected
to decline 14 percent in 2014 from 2013 amid rising expenses and a 15 percent drop in direct government
payments, according to the USDA.
—Sarah Bindner

HEALTH CARE: Medicaid Surge Along Border Signals Spending Rise

edicaid enrollments in South Texas border counties rose 6 percent in the first eight months of
2014, a particularly large increase given that one-quarter of the region’s population was already
in the program. Statewide, 13 percent of residents are in the low-income health care plan. The
added government health care funding along the border should bolster employment of health

aides.
Nearly 10 percent of South Texas border workers are employed in the home health care industry,
compared with 2.2 percent statewide. In the 1990s, the shares were about the same in the two regions.
The expansion likely reflects high rates of border poverty and chronic disease, along with low accessibility to preventive care and other factors.
Higher public sector spending has largely paid for the expansion—government transfer payments
for medical benefits in the region grew at an inflation-adjusted rate of 8.5 percent annually between
2000 and 2010. Federal budget cuts beginning in 2012 abruptly halted spending growth, straining
home health care agencies that rely on government reimbursements. As a result, home health care job
growth slowed.
—Christopher Slijk

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

SPOTLIGHT

NAFTA at 20: Shortcomings Suggest
Trade Agreement Alone Isn’t Enough
By Pia Orrenius and Jesus Cañas

he North American Free Trade
Agreement (NAFTA), binding Canada, Mexico and the
United States, turned 20 this
year. Its objectives were clear: to increase
trade and investment by eliminating tariffs, remove nontariff barriers, facilitate
cross-border movement and provide a
framework for dispute resolution.
The results have been impressive. Mexico–U.S. trade—exports plus
imports—has grown 286 percent in
inflation-adjusted terms since implementation, Jan. 1, 1994. U.S. exports to
Mexico reached $226 billion in 2013, up
from $67 billion in 1993, and imports
from Mexico climbed to $281 billion, up
336 percent. U.S. trade with Canada is
larger in volume than trade with Mexico
but grew more slowly, with exports to
Canada and imports from Canada rising
about 85 percent in real (inflation-adjusted) terms from1993 to 2013.
NAFTA foreign direct investment
(FDI) grew even more. U.S. FDI in
Mexico averaged $1.5 billion per year
before the agreement and $8.3 billion
after implementation.1
Major U.S. corporations have a large
presence in Mexico in most sectors,
including manufacturing, banking and
retail. U.S. FDI in Canada similarly vaulted from an average $4.2 billion before
NAFTA to $19.6 billion post-NAFTA.
Meanwhile, Mexico and Canada
FDI in the U.S. rose more than fourfold
in the post-NAFTA period. Well-known
Mexican companies that have entered
the U.S. market include food giants keen
on the growing Hispanic food market,
such as Grupo Bimbo (which bought
Texas-based Mrs Baird’s Bakeries),
Grupo Herdez and Gruma.
NAFTA’s successes based on its
stated objectives have been the most
far-reaching for Mexico, particularly in
the manufacturing sector. The country
supplies a variety of consumer goods
such as televisions and top-of-the-line

refrigerators. Mexico is a world-class
producer of automobiles and auto parts;
every major global car company operates a production facility there. Mexico
is the top auto parts supplier to the U.S.
and ranks second after Canada in auto
vehicle exports to the U.S.

Mexico’s Living Standards
Despite such successes, some say
that NAFTA has failed, given broader
data on Mexican living standards. There
has been no overall convergence between Mexico and its NAFTA partners.
The per capita income gap between
Mexico and the U.S. in 2012 remained as
large as it was in 1994—about 70 percent
in purchasing-power-adjusted terms
(Chart).
Mexico has made giant strides in
the last two decades in macroeconomic
stability, fiscal discipline and openness to
trade. But external shocks and domestic
structural problems continue to blunt
progress.
Even as NAFTA took effect, the
financial and banking sector collapse
known as the Tequila Crisis rocked the

Mexican economy in 1994. Domestic
credit markets still have not recovered.
Private sector credit amounted to a paltry
28 percent of gross domestic product in
2013, compared with 69 percent in Brazil
and 73 percent in Chile. More shocks followed: China’s entry into the World Trade
Organization in 2000 created new competition and led to manufacturing job
losses. Since then, Mexico has contended
with drug-related violence, declining oil
production and two U.S. recessions.
NAFTA successfully changed the
tradables sector in Mexico. Other sectors
have lagged. Promising reforms taking
root in Mexico would similarly alter the
nontradables (service) sector as well as
the energy industry, opening them up
to further competition and investment,
which would in turn raise productivity
and innovation.
After 20 years, it’s likely that the
problem has not been too much NAFTA,
but rather too little.
Note
The pre-NAFTA period spans 1982–93; the post-NAFTA
period is 1994–2013.

North American Trading Partners Still Unequal
(Gross domestic product per capita)
2005 U.S. dollars, purchasing power parity adjusted

50,000
45,000
40,000
1994

35,000

2012

Prerecession

30,000
25,000
20,000
15,000
10,000
5,000
0
Canada

Mexico

U.S.

SOURCE: Organization for Economic Cooperation and Development.

Southwest Economy • Federal Reserve Bank of Dallas • Fourth Quarter 2014

Federal Reserve Bank of Dallas
P.O. Box 655906
Dallas, TX 75265-5906

PRSRT STD
U.S. POSTAGE

PAID

DALLAS, TEXAS
PERMIT NO. 151

Single-Family Housing Squeeze Eases
in Texas; Multifamily Soars
(Continued from page 7)

Notes
Data are from the Federal Housing Finance Agency (FHFA)
purchase-only home price index, four-quarter percent
change; for example, the change in home prices between
fourth quarter 2003 and fourth quarter 2004.
2
Between March 2007 and May 2009, the S&P/CaseShiller Home Price Index for the U.S. fell 31.1 percent, while
prices in Dallas (a proxy for Texas) declined 7.5 percent.
3
FHFA purchase-only home price index four-quarter percent
change.
4
Texas ranked third in 2012 and sixth in 2013 among the
states in job growth. Texas also ranked No. 1 for domestic
in-migration for the eighth consecutive year in 2013,
according to Census Bureau population estimates.
1

DALLASFED

Texas’ major metropolitan areas are Austin, Dallas, Fort
Worth, Houston and San Antonio.
6
Mortgage rates rose nearly 1 percentage point—from 3.35
percent in early May to 4.29 in early July 2013. Mortgage
rates have fallen slightly since then. Data are from the
Freddie Mac Primary Mortgage Market Survey.
7
Data are from Metrostudy, which estimates that 20 to 24
months of lot supply is equilibrium for Texas’ major metro
housing markets.
8
In third quarter 2014, the net percentage of respondents
indicating tightening standards for construction and land
development loans was minus 9.6, suggesting that 9.6
percent more loan officers are easing standards compared
with those tightening credit.

The Housing Opportunity Index is produced by the National
Association of Home Builders and Wells Fargo. The index
measures the percentage of homes sold that are affordable
to the median-income family based on standard mortgage
underwriting criteria.
10
All data are third-quarter figures for 2009 and 2014. Starts
data are from Metrostudy and are annualized.
11
Data on multifamily units under construction are from
MPF Research.
12
Data are from CBRE Econometric Advisors’ Multifamily
Housing Quarterly Outlook History and Forecast, third
quarter 2014.

Southwest Economy

Mine Yücel, Senior Vice President and Director of Research

is published quarterly by the Federal Reserve Bank of
Dallas. The views expressed are those of the authors and
should not be attributed to the Federal Reserve Bank of
Dallas or the Federal Reserve System.
Articles may be reprinted on the condition that the
source is credited and a copy is provided to the Research
Department of the Federal Reserve Bank of Dallas.
Southwest Economy is available on the Dallas Fed
website, www.dallasfed.org.

Federal Reserve Bank of Dallas
2200 N. Pearl St., Dallas, TX 75201

Pia Orrenius, Executive Editor
Michael Weiss, Editor
Kathy Thacker, Associate Editor
Ellah Piña, Graphic Designer

Full text of The Southwest Economy : Fourth Quarter 2014

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