What do Hewlett Packard, Tesla, and Oracle all have in common? Other than being members of the Fortune 500,they are also companies moving from Silicon Valley, California to Texas. Secondonly to New York in number of Fortune 500 companies, the growth of the Texaseconomy is expected to soon take the first spot. More companies are decidingthat California is too expensive to operate. Despite California having a 36%larger population, Texas only trails by a mere 8% in per capita GDP. This illustrates the growing strength of theTexas economy. Furthermore, the LoneStar State is home to one of the most diverse economies in the world, and is sopowerful that it outranks the GDP of both Canada and Russia. Given what we haveseen throughout 2020, we can expect the economy of Texas to only continue togrow.
The USeconomy experienced some interesting developments during 2020 regarding theoutbreak of COVID-19, and the vast, nationwide impact that followed. While every state shut down portions of theireconomies, there were some states who deemed more businesses essential. Texaswas one of the states whose list of essential businesses was longer, and thismade all the difference. Even with the shut-downs occuring, Texas’ housingmarket continued with sales, hardly slowing with the new restrictions. Withmortgage rates at historical lows and the onset of COVID-19 helping to keeprates low, Texas showed no signs of slowing down after the initial shut-down inApril 2020. In fact, the housing market continued its growth pattern throughoutthe lockdown phase into summer, actually gaining sales.
With theannouncement of prominent companies moving from California, the real estatemarket has seen a significant drop in inventory of mid-market homes,specifically those in the $500K range. There has also been a slight increase insales of $1MM homes, as well. This trend is expected to continue sinceshut-down states in the north and west have seen increased interest in peoplelooking to move to business friendly states. Among these is the “businessfriendliest” state: Texas. Texas also recently amended its constitution to makea state income tax more difficult to put into place. As one of only a handfulof states without an income tax, Texas became an instant target for people likeElon Musk of Tesla.
However,none of this is new to Texas. At the endof 2019, Brenda Richardson of Forbes magazine wrote an article entitled The States That Residents are Leaving andthe Ones They are Moving To. Texas ranked number 10 based on “inboundgrowth.” The statistics included in herarticle point to a much different story when examined more closely. Thestatistics showed that Texas had a “net” migration (the number of movers INminus number of movers OUT) of over 200,000. The next closest state was Arizonaat just over 100,000 net migration. Only 4 other states had over 11,000 netmigrators, 2 had LESS than 1,000, and 1 state had a NEGATIVE net migration! Thearticle also pointed out that New York was the state people were fleeing in thelargest number. The drastic shut-down measures of COVID-19, combined with theeconomic policies adopted by California, New York, and others, are causingpeople to flee those shut-down states; especially since interest rates remainlow.
So what ison the horizon for Texas? One can look to the recession of 2008 to answer thisquestion. In 2008, Texas’ housing market did not fall like the rest of thecountry. Texas experienced only a reduction in growth rate, whereas other areasexperienced negative growth rates; amazingly, the rate of growth was still over1%. It is clear that Texas will lead the US in job growth and demand forhousing, and all of the industry that goes with it. In other words, Texas remains poised to bethe leader in jobs, housing, retail, medicine, and just nearly any other sectorof the economy that calls Texas home. The fact that Oracle, Hewlett Packard,and Tesla have seen these facts, and acted upon them, points to Texas’ growthas only having reached the tip of the iceberg.