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 Texas economy is expected to soon take the first spot. More companies are deciding that 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 so powerful that it out ranks the GDP of both Canada and Russia. Given what we have seen throughout 2020, we can expect the economy of Texas to only continue to grow.
The US economy experienced some interesting developments during 2020 regarding the outbreak of COVID-19, and the vast, nationwide impact that followed. While every state shut down portions of their economies, there were some states who deemed more businesses essential. Texas was one of the states whose list of essential businesses was longer, and this made all the difference. Even with the shut-downs occuring, Texas’ housing market continued with sales, hardly slowing with the new restrictions. With mortgage rates at historical lows and the onset of COVID-19 helping to keep rates low, Texas showed no signs of slowing down after the initial shut-down in April 2020. In fact, the housing market continued its growth pattern throughout the lockdown phase into summer, actually gaining sales.
With the announcement of prominent companies moving from California, the real estate market has seen a significant drop in inventory of mid-market homes, specifically those in the $500K range. There has also been a slight increase in sales of $1MM homes, as well. This trend is expected to continue since shut-down states in the north and west have seen increased interest in people looking to move to business friendly states. Among these is the “business friendliest” state: Texas. Texas also recently amended its constitution to makea state income tax more difficult to put into place. As one of only a handful of states without an income tax, Texas became an instant target for people like Elon Musk of Tesla.
However,none of this is new to Texas. At the end of 2019, Brenda Richardson of Forbes magazine wrote an article entitled The States That Residents are Leaving and the Ones They are Moving To. Texas ranked number 10 based on “inbound growth.” The statistics included in her article point to a much different story when examined more closely. The statistics 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 net migrators, 2 had LESS than 1,000, and 1 state had a NEGATIVE net migration! The article also pointed out that New York was the state people were fleeing in the largest number. The drastic shut-down measures of COVID-19, combined with the economic policies adopted by California, New York, and others, are causing people to flee those shut-down states; especially since interest rates remain low.
So what is on the horizon for Texas? One can look to the recession of 2008 to answer this question. In 2008, Texas’ housing market did not fall like the rest of the country. Texas experienced only a reduction in growth rate, whereas other areas experienced negative growth rates; amazingly, the rate of growth was still over 1%. It is clear that Texas will lead the US in job growth and demand for housing, and all of the industry that goes with it. In other words, Texas remains poised to be the 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’ growth as only having reached the tip of the iceberg.