Below is a note from our Housing Team (Josh Steiner and Christian Drake) with their latest assessment of the housing market in Houston, Texas. Weakness in labor conditions, birth rates and home sales is negative for medical consumption and payor mix for hospitals and other facilities with exposure to Texas (HCA, THC, CYH, MD).
* Labor conditions in Houston continued to deteriorate in June. As the first chart below shows, employment in the Oil & Gas sector continues to accelerate to the downside, coming in at -6.3% Y/Y, while broader goods sector employment remains in similar retreat, down -5.7% Y/Y. On the services side of the economy - the lone bright spot of Houston's economy - the rate of employment growth was essentially flat at +1.5% Y/Y. With Oil down -19% (again) since June, production cut rhetoric (again) proving hollow, global growth still flagging and the Houston centric Oil Services industry facing $110B in maturing debt the next few years, a sustained positive inflection seems unlikely over the nearer-term.
* Birth rates on a national level declined to -3.8% Y/Y, while those in Texas and Houston each reversed the trend and got less bad on a Y/Y basis. In June, Texas saw growth "improve" to -4.1% Y/Y, while Houston saw it improve to -5.4% Y/Y.
* Building Permits in Houston declined -4% Y/Y in June after easy comps enabled permits to rebound in May to +6% Y/Y. Year-to-date, Single Family Permits are down -5 % relative to the corresponding period last year.
* Existing Home Sales decreased to 0% YoY, a sharp correction from the +8%YoY figure recognized in May. On the supply side, inventory increased slightly, and remains near recent peak levels with homes for sale up +24% Y/Y. Meanwhile, the larger trend toward decelerating HPI remained intact with average and median existing home prices down -1% Y/Y and up +3%Y/Y, respectively.
Houston, We Have a Problem was one of our three 1Q16 Housing Themes. The broader takeaway remains unchanged; this metro area will continue to feel the effects of low-$40 oil. With employment and activity in the goods and services sectors struggling to stay afloat, the spillover continues to manifest.
Please call or e-mail us with any questions.
Thomas Tobin
Managing Director
@HedgeyeHC
Andrew Freedman, CFA
Associate
@HedgeyeHIT
