Stewart Hsu

I had the pleasure of seeing Dr. Mark Dotzour, Chief Economist for Texas A&M Real Estate Center at a Texas Apartment Association (TAA) conference 10/17 in Dallas. It was my first time seeing him speak and I found him to be very likable for an economist — nothing against economists, but I think most people don’t view economists in general as the most exciting of personalities.

Dr. Dotzour prefaced his presentation by saying that at best he’s right 50% of the time. And continued that if Bernake had been in the room he might be right 51% of the time.

With that in mind, here were the key points I gathered (for the benefit of my readers, a link to the full presentation is included below):

1. In Mark’s opinion, if there was only 1 slide to focus on, it would be slide 3 “Corporate Profits”. Given this trend is up, overall, this is a positive indicator for the economy.
2. He believes the job growth rate in Texas will double the national rate.
3. He believes a national recession is “likely” in next 12 months, but that Texas may be able to skip this national occurance.
4. He stated the Texas economy is “very strong” and pointed to a relatively well diversified job base. I found this link afterwards which I thought is worth sharing: http://www.dallasfed.org/research/update-reg/index.cfm
5. Permits for new buildings are approx. 1/3 less than 1 year ago, which is good, but he believes it could be cut another 25% to avoid issues currently being experience by Las Vegas/Phoenix markets.
6. He thinks there may be an uptick in cap rates. I thought this was particularly noteworthy as the Marcus & Millichap folks made a recent similar comment — see 2008 Apartment Market Forecast.
7. USD currency value is weakening. As a result, foreigners see U.S. real estate as increasingly “cheap”. For example, since the Euro has appreciated approx 20% against the USD in the last 2 years, it’s like they received a 20% off coupon on buying real estate in the U.S. A positive spin on this, is that it should help support demand for U.S. real estate.
8. He felt strongly that the next 10 years for real estate should be “very good.” He cited rising costs (i.e. inflation) and a growing population (i.e. increase demand) as factors that should positively impact the real estate market during this time frame.

In general, I felt his comments were neutral and fairly even-handed — as an economist, at his level, he said his job is not to paint a rosy-picture, but rather one of reality so that folks can make decisions accordingly. An interesting point he brought up was that at the FED level, those guys have to tred very carefully, as a few words can signficantly impact market perception, and in turn impact the market. The saying “perception is realty” appears to be true for the market.

I’m looking forward to seeing how 2008 shakes-out!

Texas Real Estate Markets 2008 Economic Outlook (Dr. Mark Dotzour)