Factors driving the Texas economy

Texas cities are clearly the place to be in terms of job creation, wealth formation, and overall growth. All the major Lone Star cities continue to show economic strength while the rest of the nation struggles.

I thought we would look at each of the metros and see what is driving the growth in each metro, rather than focusing on just real estate.

San Antonio

San Antonio’s economy is standing out once again as one of the four strongest metropolitan areas in Texas and eleventh overall in America according to a recent Brookings survey of the 100 largest metros in the United States. The Brookings MetroMonitor survey evaluated unemployment rates, housing prices, economic output, and employment in each city.

The unemployment rate in San Antonio is expected to decline at a slower rate as the oil and gas drilling continues to moderate. Texas is losing 90,000 military-related jobs due to the sequester and budget reductions last year. Even with the reduction in force, San Antonio is fortunate to have added 8,000+/- jobs to their economy, most of them coming from the services and construction industries. San Antonio continues to see improvement in the unemployment rate as it declined to 5.9% compared to 6.0% at the end of 2012. Employment growth is expected with residential construction picking up at the end of 2013 compared to the rest of the year. San Antonio’s residential demand continues to improve moderately, consistent with job and income growth in the area.

The Alamo City’s focus on strong growth sectors like bioscience, healthcare, aerospace, and cyber security will continue to contribute to improved employment opportunities.

San Antonio also appears in the 2012 Cost of Living Index, developed by The Council for Community and Economic Research (C2ER), as the No.1 least expensive city for food costs (as measured by the grocery item index), making for more disposable income for its residents. With the lowest cost of living in the state and one of the strongest economies in the country, San Antonio continues to attract industry and consumer alike.

Keith Phillips, senior economic policy adviser for the Federal Reserve Bank of Dallas, expects the area to add about 22,400 jobs this year, expanding the job base by 2.5 percent. That would be a significant improvement over the 1.1 percent job-growth rate in 2013 that produced about 13,200 new jobs. That was down from 2012’s 2.6 percent growth rate. The San Antonio MSA has benefitted greatly from the Eagle Ford shale opportunity. The area will continue to benefit, although at a slower pace.

All these factors have led San Antonio to a 17 percent increase in home resales in 2013 when compared with 2012. With so many people moving into the city, more jobs have been created which has translated into economic growth and a rise in home sales and home prices.”

Houston

The Houston metro area should create just under 70,000 jobs in 2014. Employment will grow in all sectors, with professional and business services, education and health services, trade, transportation and utilities and construction turning in the strongest performances. Energy and manufac¬turing will grow but at a slower pace. The year should end with 2.9 million payroll jobs, a net increase of more than 500,000 jobs since January ’05. Only two other metros – New York and Dallas-Fort Worth – are able to make a similar claim.

For the 12 months ending October ’13, the metro area created 79,600 jobs, a 2.9 percent annual growth rate. This is a slower pace than earlier in the year. Growth peaked at a 4.5 percent annual rate, or 119,300 jobs, during the 12 months ending February 2013. That was the fastest pace since June 2007, when the region added jobs at a 4.6 percent annual rate.

Houston has enjoyed almost four years of phenomenal growth. Since January ’10, the region has added 337,300 jobs, or more than two for every one lost in the reces¬sion. In that time, the region has built 100,000 single-fam¬ily homes, and exported $434.6 billion in manufactured goods and commodities.

All channels of real estate are doing well. In the 12 quarters ending Q3 2013, Hous¬ton absorbed 10.5 million square feet of office space, 12.9 million square feet of industrial space, and 3.8 million square feet of retail space. Since January ’10, residential brokers have sold more than 274,000 homes, or one home every 7.2 minutes.

The phenomenal pace of job growth that Houston experienced over the past few years couldn’t be sustained indefinitely. Some easing of the employment throttle was inevitable. That easing began mid-year 2013 and should continue through 2014 as the region moves toward a more normal and sustainable pace of job growth. Since 1993, excluding the recession years, Houston has averaged 61,900 net new jobs per year. Payroll growth has almost doubled the rest of the nation at 3.0% compared to 1.7% nationally.
Strong energy markets and a broadening economic base will continue to drive the Houston economy through 2014. Oil prices by the barrel remains healthy. West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing and continues to hover around $100 a barrel in February.

The extreme weather hammering the rest of the country has increased natural gas demand, supporting price gains and helping Houston’s and the other Texas metros’ economies. Natural gas producers have been thankful that the rest of the nation has pushed demand up to $4.60 per MmBtu (million BTU) in February, about 30% higher than last Novembers lows.

Also creating optimism is the potential of repealing crude oil exports, an export law that was put in place in the 70’s when the US was not the chief oil producer in the world. A significant portion of the gasoline produced by the regional coast refineries is exported, helping supporting the nation’s balance of oil exports. In addition Occidental Petroleum is moving its head quarters to Houston in 2015. As Mexico opens up its energy sector to international investment, Houston is poised to benefit.

DFW

The Dallas-Fort Worth economy has shown good growth through 2013, supported by three pillars: energy, organic growth, and links to the broader U.S. and global economies. Even with the flattening of the metro economy at the end of the year due to reduced Federal spending, most local labor markets continued to show strong expansion. Year-over-year payroll job growth of 3.2 percent for the Dallas-Fort Worth metropolitan statistical area was nearly double of the national average of 1.7 percent in October. Likewise, the metro area unemployment rate of 5.4% in January 2014 was well below the national average of 6.5% for the month. Payroll employment now stands at 3.15 million jobs, which is 5.4 percent above the pre-recession peak of 2.99 million jobs from May of 2006.

The Dallas-Fort Worth area also will see strong steady growth through 2014, but it will be down slightly from the fast pace of the last two years. Dallas-Fort Worth’s economy is expected to expand by 3.3 percent this year, compared with 3.4 percent last year and 4.3 percent in 2012. Dallas-Fort Worth’s job growth is projected to be 3.1 percent, compared with 3.4 percent last year. Dallas-Fort Worth’s unemployment rate is expected to decline to 5.2 percent by the end of this year from 5.6 percent in November.

In an example of strong local corporate (organic) growth, North Texas healthcare-related construction is booming. Beyond the monumental $1.3 billion Parkland Memorial Hospital in Dallas, other projects are spread throughout the region. According to the Dallas-Fort Worth Hospital Council, hospitals in North Texas account for 265,000 jobs and generate $14.4 billion in income for healthcare workers. Global links to North Texas are strengthened by the American Airlines/US Airways merger, finalized on December 9, as American emerged from bankruptcy protection. Several speculative warehouse / distribution facilities are under construction in the area. Dallas-based Southwest Airlines also benefitted from the merger, picking up 22 slots at New York’s LaGuardia Airport.

Austin

Austin continues to be one of the strongest job creating metro areas in the US with 23,600 jobs created in 2013, most of them coming from services producing sector, professional jobs. The capital city is home for many high tech companies, and wages in the tech sector are some of the highest in the area. 2014 should see Austin add thousands of additional jobs in 2014, mostly in the high tech and services sectors. High tech giants such as Google, AT&T, and Time Warner cable are competing to provide superfast internet service in the area and networking to start around mid 2014. The new service has the opportunity to attract so much business that needs the 100+% increase in internet speed.

Austin’s unemployment rate declined to 4.9% in December matching the August 1989 rate. The unemployment rate is expected to fall continuously as the year progresses, powered by the continued strong job growth. Year over year growth of personal income climbed to 4.7% in the latter half of 2013, which is second only to Houston in the state.

After a strong 2013 in all real estate channels, home starts will continue to improve, only slowed by the lack of developed lot inventory. Lack of inventory will be the biggest challenge to the local industry as the area continues to attract more residents drawn by strong job growth, cheaper cost of living, friendly business atmosphere and Austin favorable and creative investment climate. Currently Austin home prices are at a record high. Continued appreciation should continue through 2014 in most if not all Austin submarkets.

Last year saw the return of a thriving office investment market, so much so that several regional markets saw significant chunks of their overall stock of buildings change hands in 2013. Five Southern markets saw more 10% or more of their total office market inventory change hands last year: Austin, Dallas-Fort Worth, Atlanta, Houston and Denver. Austin was especially popular with office investors as 13% of its office space was acquired by new owners in 2013.

Austin has also been on the radar of institutional investors for quite some time. The metro had a huge inventory turnover in 2013 (13.1% of inventory), although a sizable portion of that (40%) was due to portfolio sales. The biggest portfolio to trade hands last year in Austin was the sale of the Thomas Properties Group portfolio of five class ‘A’ CBD towers as part of the firm’s acquisition by Parkway Properties. With a large chunk of the CBD inventory having already traded in this market the last couple of years, expect sales to remain strong, but turnover rates to moderate in the near term.

Several factors have helped Texas retain its national lead. Among them:
• Strong job growth. 40+% of all jobs created in the US last 3 years were in Texas.

• The cost of living is low. Beer? Cheap. Food? Reasonably priced. Apartments? Affordable. No state income tax gives former residents of CA or NYC an automatic raise. Texas has the second lowest cost of living of any state in the country. The same paycheck you receive in California, Florida, etc. goes a lot farther in Texas.
• Low unemployment. Only one other major market has jobless rates below 4.9 percent. Austin is at 4.9 percent. Our assumption is that strong local economies attract the most people and create the best conditions for family formation, which in turn generates new demand. Strong productive industries drive demand for such things as heath care, business services, and retail, as well as single-family houses, a critical component of local growth, and owning a home is still the aspirational goal of the vast majority of Americans.

• Retail strength. Employment in the Texas retail sector has grown by since the recession. As the retail industry will tell you, no other state has had the retail growth that Texas has shown the last five years.

• Appreciating home values. Nationally the typical home has declined in value since 2008 in 92 of the 102 markets. Among the exceptions are Texas metros, cities, and towns, with most appreciating the last 5+ years.

• People are friendly and genuinely want to help. I do not blame you if you think this sounds hopelessly naïve. Many don’t believe this statement, but time after time I hear this from newly transplants and relocating business owners. I’ve had this confirmed by multiple outside visitors: if you come from either of the coasts, you’re going to find the middle of the country almost disarmingly welcoming. People you don’t know wave to you. You can strike up a conversation with essentially anyone. Accidentally making eye contact with a stranger isn’t an awful stare-down that leaves you feeling dried out and steely; they’ll probably just smile at you. It’s the sort of thing you notice right away, in all sorts of subtle ways –- the people are just friendlier. It’s contagious, as well.

• There’s weather! If you don’t like it wait a day. Most of Texas has two seasons — summer and spring, although this year has been an exception with several winter storms. It doesn’t have the maddening consistency of California or the weather disasters of Florida. It snows occasionally and doesn’t stick. It’ll rain once in a while, it’ll get down to 30 for a week or two in February, it’ll spike up to 100+ in the summer, there are clouds and such — but most of the time, the word I would use is ‘nice, warm, with occasional swelter in August’.

• There’s stuff to do. The rest of the country tends to look at Texas as devoid of culturally fun events that you see in so many metros on the East Cost. However that is wrong. All four major metros have something happening almost every weekend. Austin leads this category. SXSW, Austin City Limits, film festivals, F1 racing and more.

The bottom line is that a lot of people are and will continue moving here, causing more demand than product. If you are moving here, don’t dawdle. If you are looking for shelter, make a decision quickly. The home / apartment you look at today will not be there tomorrow.

If you are reading this from another state / country you may be snickering as you read this. But reserve judgment till you have been here. You will see the statements above are backed by the facts.

If you live in Texas, count your blessings and know that the Texas economy has room to run.

San Antonio Rising

If you think that San Antonio’s economy is a bit slower than the rest of the state, then you need to look again. If you have been in Texas for a while, you probably think of military bases, manufacturing, and a slower lifestyle when you picture San Antonio. Now, you should also include big oil, the future of computing, and a strong wealth of high tech industries.

Growing up in Texas, once you got south of San Antonio, it was a long boring drive to Port Aransas, or hunting around Kingsville. All that has changed with ‘fracking’ and the Eagle Ford Shale boom.

We covered the strength of San Antonio’s economy in our February 1st edition of the Independence Voice. Since then, I have had the good fortune attend the March 2013 economic update of the Eagle Ford shale. The findings were surprising, and for those fortunate enough, life altering. San Antonio’s economic future looks strong, for a while.

Since the first Eagle Ford Shale well was drilled in 2008, there has been increased demand for labor, housing, and qualified personnel in the cities and counties affected by the oil fields and related businesses. Below is a map of the 14 counties (green) where the fracking environment has had the biggest economic impact. The field is approximately 50 mile wide and 400 miles long. Its economic impact is felt not only in those counties where activity is actually happening but in the surrounding counties as you can see below. There has been a flurry of increasing drilling activity in the area, with 26 well completions in 2008, 1649 in 2011, and 2983 in 2012.

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This tremendous economic development affects not only San Antonio, but all of South Texas and the rest of the state. The Institute of Economic Development at UTSA has determined the following financial impacts:

• Almost doubling to over $46 billion in total economic output (up from nearly $20 billion in 2011)
• Oil and related businesses supported 116,000 jobs (up from 38,000 in 2011)
• $3.25 billion in salaries and benefits paid to workers (up from $2.6 billion in 2011)
• Over $22.8 billion in gross regional product (up from $10.9 billion in 2011)
• More than $1 billion in state revenues (up from $312 million in 2011)
• More than $828 million in local government revenues (up from $211 million in 2011)

Thankfully, one of the most significant effects from the boom may be seen in the state’s income. Like so many states in 2008 – 2009, the state ran in the red on their budget due to the recession. Taxes on oil and gas production have soared past estimates from the state’s comptroller’s office for fiscal 2012. And with production expected to continue to rise over the next several years, the economic benefits will continue.

The history of the Eagle Ford’s development, which started in late 2008, was temporarily interrupted by the recession and at the same time a sharp decline in energy prices. In Texas, domestic drilling collapsed in 2008–09 with the economic crisis, and the rig count fell more than 50 percent. It was back on track a year later by 2010, and has continued growing at a rapid pace. Texas produced more oil in 2012 than Alaska, North Dakota, and California combined, the next three highest oil producers in the U.S.

During this time, the value of land in the formation has increased exponentially, making some people very rich in a very short period of time. In turn, some of this new wealth is cycled back into the economy in the form of increased consumer spending. If only 5% of the new wealth makes it back into the local economy, it will still be an increase of $400+ million annually. Many South Texas ranchers saw new income from lease payments. Previously the only income was from whatever livestock could survive on the desert plants. This all changed with the income from oil leases. Lease payments are made to reserve the mineral rights on a specific property, usually stated as a fixed amount per acre, giving the leasing company the right to test, explore or produce oil and gas. The state estimates that over 4.6 million acres have been leased in Eagle Ford counties at $1,200+ per acre. There are reports of lease rates as high as $20,000 per acre in the hottest-producing areas, but the average of 23 counties is difficult to estimate. However lease rates vary not just by location, but also by when they were signed. Conservative estimates of $1,500 per acre and 5 million acres produces a remarkable $7.5 billion in compensation since 2007.

As stated above, most of the 23 Eagle Ford counties are rural, with a history of cattle ranching, hunt¬ing and some traditional oil and gas drilling. However for the five counties where the job growth rate has been the strongest—McMullen, Dim¬mit, La Salle, Live Oak, and Lee, retail sales grew at an annual rate of 55.1 percent, or $100.9 million, from first quarter 2010 to third quarter 2011. For the entire 23 county area, seasonally adjusted retail sales increased at a 15.4 percent annual rate, or $580.7 million. During this period, comparable retail sales rose 7.2 percent in the U.S. and 6 percent in Texas.

All this activity in South Texas has allowed San Antonio to come through the recession stronger than most. Besides the 4,000+ jobs created annually in Bexar county by the oil play, the city has had the geographic fortune of being the metro where the crossroads of two of the largest commerce highways. Interstate 35 is the main north-south artery through the US, as well as a major hub for entry into Mexico and Latin America, and Interstate 10, giving easy access to the processing and shipping facilities in Houston.

The geography helps draw major manufacturers, such as Toyota. In addition there is an expanding medical complex and university scene, and a downtown kept lively by tourists, convention-goers, and service members from the city’s three military bases. Joint Base San Antonio is the largest base organization in the Department of Defense, comprised of three primary locations -Fort Sam Houston, Lackland, and Randolph. It employs more than 92,000 military and civilians, is home to nation’s largest military hospital, and has an economic impact on the local community of $27 billion.

USAA, one of the largest financial services and insurance companies, is San Antonio’s biggest private employer. They just leased about 128,000 more square feet of office space to accommodate up to 1,000 more workers. You also have fast growing companies including Rackspace, Petco and SunEdison that have all added local jobs.
I mention Rackspace, a billion-dollar hosting and cloud-computing company that has found San Antonio’s low risk of natural disasters or disruptive weather perfectly suit the requirements of gigantic data centers. Rackspace is to San Antonio what Dell Computer was to Austin in the early 90’s. Rackspace’s economic footprint and continued corporate expansion as well as corporate spinoffs expansion has made San Antonio a magnet for high tech jobs. Austin is often considered to be the “tech hub” of the state, but the San Antonio area was ranked at 13th for growth in high-tech jobs from 2006 through 2011. During this period, the area saw growth of 23.6 percent in that sector while the nationwide rate was 1.4 percent during the same period.

Rackspace in turn has spawned the co-workspace and start-up incubator Geekdom. This group was started by Rackspaces entrepreneur CEO Graham Weston. It is basically a business incubator for those individuals wanting to get more involved with the IT field. It provides a place for individuals to sort their ideas out before they are established enough to purchase their own location for business and bring on more individuals to be a part of it. This co-creation of evolving IT jobs is not only stimulating the economy of San Antonio, but its corporate location in the CBD may have the same affect that the tech firms had on downtown Austin.

This high tech cooperative encourages budding entrepreneurs and startup companies in the area, which in turn allows the founders to lead their community to generate even more local jobs. Reports show that for each high tech job that is created, an additional four jobs are created which in turn continues helps boost the economy in the San Antonio region.

Taking it a step beyond the entrepreneurial level, local efforts are targeting education at high schools and middle schools to ensure they are offering the appropriate curriculum and technology training to develop the future high-tech workforce. With the increased national spotlight on science, technology, engineering and mathematics (STEM), the local business and technology community is already increasing their focus on these areas.

San Antonio’s strong STEM movement forces the local economy to move into new areas. This focus is hoping to get children interested in these respective areas from a young age and let them know that these are the most promising topics to focus on when choosing continuing education and working towards a successful, financially rewarding career.

The potential strength of the new San Antonio economy will be something to watch. In the arenas this analyst normally watches, real estate and finance, I believe they are where Austin was in the early 90’s. The lower cost of living, wages, and real estate will continue to attract many corporations. San Antonio also has limited residential, office and other real estate offerings, much like Houston and Austin had 3 years ago. The opportunity for improved values in the San Antonio market seem remarkably healthy for a while.
If you have not looked at San Antonio for investment or relocation, this may be the time.

Texas vs. California (Part 3)

This is our third installment in a series discussing Texas and California. We have written about why businesses and individuals seem to be leaving CA for TX. One in five Americans calls California or Texas home. The two most populous states have a lot in common: a long coast, a sunny climate, a diverse population, plenty of oil in the ground, and Mexico to the south. Where the states really diverge is in their governance.

Let’s look at population, GDP, and the states’ respective budgets. We will use budget data from the Census Annual Survey of State Government Finances and job and per capita income data from the Bureau of Economic Analysis.

Last year (2012), California had a population about 30% larger than Texas, a deficit 210% higher, and state debt 380% higher. It’s safe to say that low-tax Texas appears to be in a better fiscal shape.

California earned the name “The Golden State” and adopted the motto in 1968. The nickname’s origins are from the discovery of gold in 1848, and the expansive fields of poppies and many opportunities present in the state. In 1950 the Golden State had 40% higher per capita income than Texas. In 1970, the advantage was still over 30%. By 2009, the difference had shrunk to only 10%, without taking into account the higher cost of living in California.

As we have discussed the last couple of weeks, it appears that Texas is doing better than California not only fiscally, but also in terms of aggregate job and income growth.

One thing I would warn about is exaggerating California’s debt problem. It’s true that they have mismanaged their finances, and expanded government seemingly beyond what they can afford. However, California is still extremely wealthy, with a total GDP of about $1.8 trillion dollars in 2011. This is bigger than Brazil and Russia ($1.6 trillion) and almost as large as Italy ($2.3 trillion). Texas is $1.2 trillion in comparison. So while their tax base may appear narrow, their entire economic base is very wide. The debt to GDP ratio for California alone is still below 10% (or 80%, if you add the national debt).

Also, let’s not make too strong policy-inference from the short-term (less than ten years) mortgage-bubble that is currently distressing California. Policy should be based on evaluations of long term performance. We would argue above that the long term trend also favors Texas.

There are many other reasons why Texas is thriving while other states flail.

Rising oil prices

A boon for Texas, California not so much.

In 2012, the Brent crude oil spot price averaged $112 per barrel, and rose to $119 a barrel in early February. Even though we have seen an unexplained surge at the pumps lately, the Energy Information Administration is projecting an average price of $109 a barrel. Crude prices peaked at $134.02 per barrel in June 2008. Those rising oil prices may have been bad news for drivers, but they helped out the Texas and California economy, which rank #1 and 3 respectively in oil output.

When oil prices are high, job growth in Texas historically has exceeded that of the nation. Texas entered the recession late and came out early, mirroring trends in oil prices, which rose towards the beginning of the recession, fell in 2009, but have been steadily rising since.

The states that are expanding economically are almost all energy states. Based on Dallas Federal Reserve research, a 10 percent increase in oil prices leads to a 0.3 percent rise in employment and a 0.5 percent rise in GDP for the state of Texas.

One of the big differences between the two states has been the introduction of fracking. New recovery techniques, such as steam injection and later hydraulic fracturing (fracking), changed the industry and lessened our reliance on other countries oil production. A decade ago, Texas oil engineers decided to combine horizontal drilling with a process called hydraulic fracturing, which injects chemical-laced water into the shale to push out the minerals. The system has been effective in releasing previously untapped pockets of natural gas in shale formations, such as the Eagle Ford shale formation in South Texas. In 2000, 1 percent of the U.S. gas supplies were from shale, but now the figure is 25 percent. And as a result of the new technology, Texas is home to some of the most prosperous new oil fields in the country.

Fracking has opened up the Eagle Ford formation to tremendous economic opportunity. This region of south Texas was a sparsely populated area that has not historically been very economically strong. Fracking has breathed new life into the area and has not only brought jobs but has also created a new set of millionaires whose land has sky rocketed in value.

In California, fracking has kept older fields open, particularly those in Kern County, and has preserved CA’s place as the nation’s third largest petroleum producer. But to this point, fracking has not been used for new fields due to environmental and regulatory concerns. Meanwhile, oil production is booming in other states, principally North Dakota and Texas, due to extensive use of fracking to tap into deposits in shale — so much so that the U.S. may soon become an exporter again.

But what about California? It’s been estimated that deep shale deposits in California, particularly those along California’s Central Coast and in the Central Valley, contain as much as 400 billion barrels of oil, equivalent to half of Saudi Arabia’s oil fields. But whether California experiences a new oil boom similar to one it saw in the early 20th century depends on whether the state’s extraordinarily sensitive environmental conscious can tolerate more fracking, particularly along the coast.

So will California see a new oil boom? Not immediately, but the potential is there to help improve a somewhat stagnant economy, create many thousands of jobs, and pump billions into state and local government coffers. The question is at what cost?

Housing costs

Texas has been referred to as one of the remarkable economic stories of the last decade. But its growth isn’t due to the wealthy fleeing to places with the lowest tax rates. If you look closer at the data, the people moving out of the state are wealthier than those moving in — so the lower housing costs and living expenses in Texas is a major magnet.

We all are aware of the ramifications of runaway real estate appreciation. From 2000 to 2006 as California experienced over 250% appreciation of real estate assets (Source: OFHEO). At the same time Texas was 50th in appreciation with less than 3% annual appreciation annually.

This lack of appreciation in Texas helped the state escape the foreclosure bust that crippled other states’ economies —less than 2 percent of Texas mortgage borrowers are in or near foreclosure, according to the Mortgage Bankers Association, while the national average is nearly 10 percent. States like Arizona, Florida, and Nevada faced mortgage borrower foreclosure rates of 13, 12, and 19 percent, respectively, in 2012. Texas’s relatively stable market may have been a factor in preventing housing prices from climbing. California and Nevada have been helped by investors shoring up prices. As of December, 10% of Florida’s home loans were still in some stage of foreclosure, the highest percentage in the nation. Behind it were New Jersey (7%), New York (5%), Nevada (4.7%), and Illinois (4.5 percent), according to CoreLogic. Among the five, only Nevada is a non-judicial foreclosure state.

Some credit Texas’s stability to state regulations on cash-out and home equity loans, which don’t allow borrowers to take out loans that total more than 80 percent of a home’s appraised value. California, Florida, and many other states had a run of 100% refinances with borrowers sometimes refinancing two or three times in a couple of years to retrieve money from their over-appreciated homes. These cash-out loans allowed borrows in other places to refinance their homes for more than their original mortgage value — driving up home prices and contributing to the eventual burst of the housing bubble.

Another factor in Texas that prevented housing prices from rising dramatically during the housing boom is the abundance of cheap, open land and easier building regulations. Look at land values on both coasts as well as the length of the entitlement process (the process from purchase through engineering to the start of development). 6 months to 2.5 years in Texas is a walk in the park compared to 7 to 10 years in California, Florida, Arizona and other ‘boom’ states.

Affordable homes are one of the key reasons Texas continues to thrive. The California average home price is $738,526 and the median price is $452,000. Texas is significantly less expensive with a $283,137 average price and a $144,900 median price. Affordable land and limited municipal and state regulation allow for less expensive homes. In Texas the cost of the home is traditionally 5x the price of the lot, or 3x the price of the lot in more desirable areas. In California, it is the opposite, where the land is typically the largest cost.

Cost of labor

Immigrant workers make up the majority of migrant farm workers in places such as California’s Central Valley and southern Texas doing seasonal work such as fruit picking and sorting. Seventy five percent of crop workers in certain areas are from Mexico and about half are undocumented, according to a 2011 U.S. Department of Labor survey. Immigrant workers make up a vital part of the construction workforce. In California, Nevada, Texas and Arizona, it is estimated a third of all construction workers are immigrants. Twenty percent of construction workers nationally were born abroad. Of these figures, more than half came from Mexico and another 25 percent from Latin American countries.

Both states have a pool of cheap, unskilled labor. However, skilled labor is another story. Businesses are moving away from areas with a high concentration of unionized skilled labor. As Dr. Mark Dotzsour from Texas A&M said, ‘Let’s face it. Employers come to Texas and other southern locations because they feel that they can make a higher profit. Taxes are a major consideration. So is the cost of labor. Clearly businesses are moving away from areas with a high concentration of unionized labor.’

The Bureau of Labor Statistics puts out information about the percentage of all workers in each state that are represented by a labor union. Here are the states with the highest concentration:

• New York, 24.9%

• Alaska, 23.9%

• Hawaii, 23.2%

• Washington, 19.5%

• Rhode Island, 18.4%

• California, 18.4%

• Michigan, 17.1%

• New Jersey, 16.8%

• Massachusetts, 16.2%

• Illinois, 15.5%

Here are the states with the lowest concentration:

• Arkansas, 3.7%

• North Carolina, 4.3%

• South Carolina, 4.6%

• Georgia, 5.4%

• Virginia, 5.5%

• Minnesota, 5.7%

• Tennessee, 5.9%

• Texas, 6.8%

Many companies like the flexibility associated with the ability to freely make decisions without the pressure of a union, so states with a low percentage of a unionized private sector labor force ranked near the top for many business owners and CEO’s. That coupled with a lower cost of living for a company’s workers has made moving companies to Texas more attractive.

The ability to make money motivates workers, suggesting an advantage for places with higher pay. The nation’s leaders in earnings per job were found in the Northeast, led by New York, Connecticut, Massachusetts and New Jersey. California, on the other side of the country, comes next. These states lost some of their appeal because steep living costs and taxes ate into the higher pay. Texas, a state with low living costs and taxes, ranked a respectable 13th in earnings.

As we have discussed the last few weeks, both states (California and Texas) have their strengths and weaknesses. Each has had their chance for their day in the economic sun. The question is what will the next decade bring? The strength of less regulation and lower taxes or the need for more government services? California’s habit of raising taxes to fund a burgeoning regulatory state isn’t without impact on its economy. Californians fork over about 10.6 percent of their income to state and local governments, above the U.S. average of 9.8 percent. Texans pay 7.9 percent. This affects the bottom line of both consumers and businesses.

Presently Texas seems to be the people’s choice.