1 economic outlook for central texas real estate dr. james p. gaines research economist real estate...
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Economic Outlook for Central Economic Outlook for Central Texas Real EstateTexas Real Estate
Dr. James P. GainesResearch EconomistReal Estate Center
Texas A&M [email protected]
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NewsHappy New Year! The staff of the Real Estate Center wish you and yours a happy and prosperous new year! This year marks the 35th anniversary of the Real Estate Center. In 1971, Gov. Preston Smith signed legislation creating the Texas Real Estate Research Center and placed it at Texas A&M University. Instructor Training Courses, May 18-19, College Station, Texas. The Legal Update and Ethics instructor training courses include credit for the required 3-hour Legal Update course and the required 3-hour Ethics course. In addition, each instructor training course will include a brief orientation to the teacher’s manuals for each course as well as a discussion of training issues.
Events Calendar
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We’ve Spent a Lot of Time Around the Ole Water Cooler
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Summary of the “Great Summary of the “Great Recession”Recession”
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• A 0% funds rate, $1.4 trillion annual deficit and a $2.2 trillion Fed balance sheet
• Approximately $3.5 Trillion in total government stimulus
• Nearly one-third of homeowners have negative equity
• 1 in 6 are either unemployed or underemployed.
• 1 in 7 homeowners either delinquent or in the foreclosure process
• Small business failures are up 44% y/y
• 20% - 30% slide in home prices
• 50% plunge in commercial real estate values
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Percent Growth in Real GDP Percent Growth in Real GDP Since 2000Since 2000
Seasonally Adjusted Annual Rate Seasonally Adjusted Annual Rate
5Source: Bureau of Economic Analysis
An uninspired 2.7% increase during first half of 2010
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Personal Consumption Personal Consumption ExpendituresExpenditures
Source: Department of Commerce, SAAR
Personal consumption represents about 70% of US economy and is showing signs of recovery
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Source: The Conference Board (1985=100)
Consumer Confidence Consumer Confidence IndexIndex
7
7 cycles since 1967:Avg. during recession = 72Avg. at end of recession = 71.5; Avg. during an expansion = 102
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Annual Employment Growth Annual Employment Growth Rates for US and TexasRates for US and Texas
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Texas
US
Source: BLS
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Annual Employment Growth Annual Employment Growth Rates for US, Texas and Austin Rates for US, Texas and Austin
MSAMSA
9
Texas
US
Source: BLS, TWC, Real Estate Center at Texas A&M University
Austin
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Measures of Un- and Measures of Un- and UnderemploymentUnderemployment
10Source: BLS
Percent SA
U-6, the broadest measure
Headline Rate
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Measures of Un- and Measures of Un- and UnderemploymentUnderemployment
11Source: BLS
Percent SA
U-6, the broadest measure
Headline Rate
Austin
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Unemployment Rate by Level of Unemployment Rate by Level of EducationEducation
June 2010June 2010
12Source: BLS , 25-years old +; Seasonally adjusted rates
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Source: National Federation of Independent Business
Small Business OutlookSmall Business Outlook“Planning To Hire People In The Next Six Months”“Planning To Hire People In The Next Six Months”
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Are There Secular Changes Are There Secular Changes Going On Given Economy, Going On Given Economy,
Credit Collapse and Credit Collapse and Household Net Worth Household Net Worth
Implosion?Implosion?• Debt & Savings• Discretionary spending patterns• Homeownership • Financial System & Banks
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Wow, back in 1990, the Government seized the Mustang Ranch brothel in
Nevada for tax evasion and, as required by law, tried to run it.
They failed, and it closed.
A Thought from Maxine
"BAIL EM OUT! ????”
Now we are trusting the auto industry, the banking system and healthcare to the same nit-wits who couldn't make money running a whore
house and selling whiskey!
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Our Last Economic and Housing Forecasting Staff Meeting
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Major Hurdles for 2010 Major Hurdles for 2010 & 2011& 2011
1. State, local and school districts’ falling revenues
2. Credit contraction continues – business, consumer credit, mortgages
3. Jobs, income and spending
4. Pending changes in laws, regulations and taxes – capital gains tax; cap and trade; financial institutions & banking regs – UNCERTAINTY!
5. “Extend & Pretend” in banking system
6. “Foreclosure-gate”
7. Psychological malaise
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Texas Scenarios for 2010-Texas Scenarios for 2010-20112011
• Texas lagged into recession may be leading out• Expect job losses to stop and new jobs to start
being created, 1.5% maybe 2% job growth in 2010• Natural gas prices and activity just as important as
oil prices• Flat housing sales and prices until economy truly
recovers• Small and regional bank problems to work out• State, local and school districts financial problems
just really starting• In-migration should reinvigorate economic growth
and housing markets
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Texas Index of Leading IndicatorsTexas Index of Leading Indicators
Source: Federal Reserve Bank of Dallas
(1987=100)
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Texas Retail Sales Texas Retail Sales MonthlyMonthly
SEASONALLY ADJUSTED , BILLIONS OF DOLLARSSEASONALLY ADJUSTED , BILLIONS OF DOLLARS
Source: Federal Reserve Bank of Dallas
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The Housing The Housing MarketMarket
The Housing The Housing MarketMarket
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Current Housing TrendsCurrent Housing Trends• Tax credit & direct subsidies over
• Household creation very slow; generational housing preferences changing
• Purchase mortgages much more difficult to obtain – tight underwriting
• Renting a more viable option
• Appraisals are major issue in purchases
• Jumbo home loans and ADC loans difficult
• Housing deflationary expectations
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Lost Wealth: Households’ Lost Wealth: Households’ Equity in Real EstateEquity in Real Estate
Source: Federal Reserve, Flow of Funds, B-100
$6.2 trillion or 47% in lost real estate equity
RE Equity about where it was in 1999-2000
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Total HH Home Mortgage Total HH Home Mortgage BorrowingBorrowing
Source: Federal Reserve, Flow of Funds, D-2
$0.5 trillion between 1972 and 1979;$1.5 trillion between 1980 and 1989;$2.1 trillion between 1990 and 1999; $6.1 trillion between 2000 and 2007
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First-Time Home Buyers First-Time Home Buyers (Percent of Total Home Buyers)(Percent of Total Home Buyers)
26Source: NAR, 2009 Profile of Home Buyers and Sellers
Top Four Reasons for First-Time Buyers:1.Desire to Own (62%)2.Current Affordability (10%)3.Change in Family Situation (8%)4.Tax Credit (6%)
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Source: Mortgage Bankers Association, National Delinquency Survey
US Mortgage Delinquency US Mortgage Delinquency RatesRates
All Mortgages
Prime Mortgages
Subprime Mortgages
US mortgage delinquency rate set all time high in 4Q2009
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Monthly Foreclosure Monthly Foreclosure Filings Filings
Source: RealtyTrac, Inc. Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
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Texas foreclosures have been far more stable than US
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29Sources: US Census Bureau , NAR, NAHB, NBER
(000s)
Existing SF sales are down 21% from 2005 peak
New SF sales are down 78% from 2005 peak
New and Existing SF Home Sales U.S.New and Existing SF Home Sales U.S.
1980-1989 3.55 million per year1990-1999 4.7 million per year2000-2006 7.15 million per year2007-1H2010 4.3 million per year
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Distressed Home SalesDistressed Home Sales
30Source: NAR
Foreclosures
Short Sales
Total Distressed Sales
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Number of Housing Units Number of Housing Units Vacant and Held Off MarketVacant and Held Off Market
31Source: US Census Bureau
Total inventory of vacant units may be closer to 9 million, including condos, foreclosures and other properties effectively vacant
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Annual U.S. Median Existing Annual U.S. Median Existing Home Price Percent ChangeHome Price Percent Change
32Source: NAR
Since 2005, median price of a SF home is down 23.5%
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33Source: NAR, Real Estate Center at Texas A&M University
US Median Home Prices Since 1990US Median Home Prices Since 1990National House
Price Bubble
1990-2000 Trend
12-Month Moving Average
Since 2001
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National Housing Affordability National Housing Affordability IndexIndex
34Source: NAR Composite Index
Average 1994-2003 = 132.4
Drop of 31.5% from April 2003 to July 2006
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US Total Housing US Total Housing StartsStarts
TotalTotal UnitsUnits & & 12-Month Moving Average12-Month Moving Average
35Source: US Census Bureau, Real Estate Center at Texas A&M
Monthly Units
12-MonthMoving Avg.
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Has the Housing Market Has the Housing Market Bottomed? Bottomed?
Answer: maybe, hopefully, probably. But we still may not really know for sure for another several months.
Can the market sustain itself without massive Federal government help
Foreclosures will stay high. A large number of Option-ARM and prime ARM mortgages reset starting this quarter and going through all next year and into 2011.
The health of the housing market, nationally and locally, depends on a general economic recovery - especially stopping the loss of jobs and preferably adding new jobs.
The housing market may have bottomed out, but will probably have a long, slow recovery – think 5 to 10 years, not just one or two.
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Number of Years to Clear Number of Years to Clear Available InventoryAvailable Inventory
Annual Avg. Sales Estimated Inventory to Clear
9,000,000 10,000,000 11,000,000 12,000,0004,500,000 2.0 2.2 2.4 2.7
5,000,000 1.8 2.0 2.2 2.4
5,530,000* 1.6 1.8 2.0 2.2
6,000,000 1.5 1.7 1.8 2.0
6,500,000 1.4 1.5 1.7 1.8
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* 2009 annual sales level
Somewhere between mid-2012 and 2014
When and How Does the When and How Does the Housing Market Go Back Housing Market Go Back
to “Normal”?to “Normal”?
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Texas & Austin Texas & Austin Housing Housing MarketsMarkets
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Texas Single- Family Texas Single- Family MarketMarket
SalesAverage
Price Median PriceMonths Inventory
September2009 18,633 $185,200 $147,600 7.1
September2010
15,199-18.4%
$195,6005.6%
$147,7000.1%
7.9
YTD 2009 159,566 $183,517* $143,992* 7.3#
YTD 2010 158,699-0.5%
$189,550*
3.3%$146,292*
1.6%8.0#
39Source: Real Estate Center at Texas A&M University; NTREIS* 12-month moving average to date; # 3Q2009 vs. 3Q2010
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Texas Single-Family MarketTexas Single-Family Market3Q2010 3Q2010
40
Source: Real Estate Center at Texas A&M University
Statistic 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3Y/Y %
Change
Sales (units) 60,899 53,762 43,356 66,718 48,625 -20.15%
>>>>QoQ % Change -11.71% -19.35% 53.88% -27.11%
Median Price 150,400 143,200 141,600 149,100 152,000 1.06%
>>>>QoQ % Change -4.78% -1.11% 5.29% 1.94%
Avg Price 190,285 183,834 182,087 192,356 200,502 5.36%
>>>>QoQ % Change -3.39% -0.95% 5.63% 4.23%
Mo. Inventory 7.300 6.500 6.800 7.300 8.000 9.58%
>>>>QoQ % Change -10.95% 4.61% 7.35% 9.58%
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41Source: Real Estate Center at Texas A&M University
Annual Texas Home Annual Texas Home SalesSales2009 = sales down 8% from 2008 levels
2010 should be relatively flat about equal to 2001-2003 levels
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Texas Home Sales Texas Home Sales 12-Month Moving Average12-Month Moving Average
42Source: Real Estate Center at Texas A&M University
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Texas Months Inventory of Texas Months Inventory of Homes For Sale and FHFA Homes For Sale and FHFA
Appreciation RateAppreciation Rate
43Source: FHFA, Real Estate Center at Texas A&M University
Months Inventory
Appreciation Rate
FHFA Appreciation Rate
Average Annual Appreciation = 3.9%
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Texas Median Home Texas Median Home PricesPrices
Essentially flat in 2008 & 2009
2010 should hold steady
Source: Real Estate Center at Texas A&M University 44
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Texas Median Home PriceTexas Median Home Price12-Month Moving Average12-Month Moving Average
45
Current prices are about 8% below trend
Source: Real Estate Center at Texas A&M University
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Texas SF Building Texas SF Building PermitsPermits
46
2006 98% of 2005 peak2007 72% of peak2008 49% of peak2009 41% of peak2010p 42% of peak
1984 82% of 1983 peak1985 66% of peak1986 57% of peak1987 43% of peak1988 35% of peak
Source: US Census Bureau, Real Estate Center at Texas A&M
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Texas Monthly SF Texas Monthly SF PermitsPermits
12-Month Moving Average12-Month Moving Average
Source: US Census Bureau, Real Estate Center at Texas A&M
2003 Trend Line
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Austin Single- Family Austin Single- Family MarketMarket
SalesAverage
Price Median PriceMonths Inventory
September2009 1,934 $236,200 $184,800 6.4
September2010
1,393-28.0%
$246,2004.2%
$193,3004.6%
6.8
YTD 2009 15,558 $236,225* $185,775* 6.7#
YTD 2010 15,5950.2%
$244,350*
3.4%$188,100*
1.3%7.3#
48Source: Real Estate Center at Texas A&M University; NTREIS* 12-month moving average to date ; # 3Q2009 vs. 3Q2010
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Austin Single-Family MarketAustin Single-Family Market3Q2010 3Q2010
49
Source: Real Estate Center at Texas A&M University
Statistic 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 Y/Y % Change
Sales (units) 6,156 5,189 4,220 6,700 4,675 -24.05%
>>>>QoQ % Change -15.70% -18.67% 58.76% -30.22%
Median Price 187,600 179,900 179,000 190,300 200,200 6.71%
>>>>QoQ % Change -4.10% -0.50% 6.31% 5.20%
Avg Price 237,583 237,512 233,399 244,716 261,272 9.97%
>>>>QoQ % Change -0.02% -1.73% 4.84% 6.76%
Mo. Inventory 6.700 5.700 6.100 6.900 7.300 8.95%
>>>>QoQ % Change -14.92% 7.01% 13.11% 5.79%
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Austin Annual Home Austin Annual Home SalesSales
2009 down 7%2010 Flat ~ 2003-2004 levels
Source: Real Estate Center at Texas A&M University
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Austin Monthly Home Austin Monthly Home SalesSales
12-Month Moving Average12-Month Moving Average
51Source: Real Estate Center at Texas A&M University
Current monthly sales are about equal to 2004 levels
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Austin Median Home PricesAustin Median Home Prices
52Source: Real Estate Center at Texas A&M University
2010 up about 2%
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Austin Median Home Austin Median Home PricesPrices
12-Month Moving Average12-Month Moving Average
53Source: Real Estate Center at Texas A&M University
Median home prices have nearly regained the peak in October 2008
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Austin Months Inventory of Austin Months Inventory of Homes For Sale and FHFA Homes For Sale and FHFA
Appreciation RateAppreciation Rate
54Source: FHFA, Real Estate Center at Texas A&M University
Months Inventory
Appreciation Rate
FHFA Appreciation Rate
Average Annual Appreciation = 5.2%
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Price Distribution of Austin MLS Price Distribution of Austin MLS Homes Sold: 2000 vs. 2010eHomes Sold: 2000 vs. 2010e
55
Median Price2000 $ 144,5002005 $ 161,3002010 $ 189,900
00 Median
‘10 Median
Source: Real Estate Center at Texas A&M University
05 Median
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Austin SF Building Austin SF Building PermitsPermits
56
2007 69% of 2006 peak2008 44% of 2006 peak2009 38% of 2006 peak2010p 33% of 2006 peak
1985 63% of 1984 peak1986 59% of 1984 peak1987 27% of 1984 peak1988 24% of 1984 peak1989 22% of 1984 peak
Source: U. S. Census Bureau, Real Estate Center
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Austin SF Building Austin SF Building PermitsPermits
12-Month Moving Average12-Month Moving Average
57
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Austin Multi-Family Building Austin Multi-Family Building Permits Permits
58Source: US Census Bureau, Real Estate Center at Texas A&M University
574 units permitted so far in 2010.
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Texas – Poised for a Texas – Poised for a 21st Century Boom21st Century Boom
• Population and Economic growth• Low cost, available labor• Pro Growth Attitude• Migration into State from elsewhere• Attractive Retirement Area• Pressure on infrastructure, government
services, public finance• Most affordable state for land, housing
and overall cost of living59
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2000 – 2009 States with 2000 – 2009 States with Population Increases > 1 Population Increases > 1
millionmillion
Source: U.S. Census BureauTable 4: Cumulative Estimates of the Components of Resident Population Change for the United States, Regions, States, and
Puerto Rico: April 1, 2000 to July 1, 2009 60
StatePopulation
IncreasePercent Increase
2009 Population
Texas 3,930,484 18.8% 24,782,302
California 3,090,016 9.1% 36,961,664
Florida 2,555,130 16.0% 18,537,969
Georgia 1,642,430 20.1% 9,829,211
Arizona 1,465,171 28.6% 6,595,778North Carolina 1,334,478 16.6% 9,380,884
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Top Growth MSAs 2000-Top Growth MSAs 2000-20092009
61
Source: U.S. Census Bureau
Since 2000, DFW added more than 1.28 million people; Houston added more than 1.15 million people; Austin added more than 455,000; and San Antonio added more than 360,000
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Population Growth 1999-Population Growth 1999-20092009
62
Austin Texas U.S.Source: U.S. Census Bureau
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Texas Urban TriangleTexas Urban Triangle
63
In 2007, 15.3 million people, about 90% of the total population in the area, lived in the four principal metro areas in the triangle
By 2040, 33.7 million people will live in the four principal metro areas in the triangle, a 120% increase
58,410 square milesLongest distances: 362 miles N-S 315 miles E-W
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Source: U.S. Census Bureau, Texas State Demographer 2008 Projections
(000s)
Projected Texas Population Projected Texas Population 2000 - 20302000 - 2030
At 50% 1990-2000 rate of immigration At 2000-2007 rate of immigration At 100% 1990-2000 rate of immigration
Between 9 and 18 million more residents between 2005 and 2030
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Source: US Census Bureau, Texas State Data Center and Demographer
Austin MSA PopulationAustin MSA PopulationAustin MSA: Bastrop, Caldwell, Hays, Travis & Williamson Austin MSA: Bastrop, Caldwell, Hays, Travis & Williamson
CountiesCounties
On average about 1,450,000 more people or roughly double the 2005 population
65
At 50% 1990-2000 rate of immigrationAt 2000-2007 rate of immigrationAt 100% 1990-2000 rate of immigration
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Lake Travis TodayLake Travis Today
66
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Lake Travis in 2050?Lake Travis in 2050?
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68
Texas Age Distribution Texas Age Distribution 2005-20302005-2030
Boomers
Boomers
2020Boomers
2030Boomers
2005 2010
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Economic Outlook for Central Economic Outlook for Central Texas Real EstateTexas Real Estate
Dr. James P. GainesResearch EconomistReal Estate Center
Texas A&M [email protected]