Since 2005 Houston has been enjoying employment growth at a higher percentage rate than the rest of the U.S. and is anticipated to keep the city’s economic engine running.

Houston Ranks Third in Employment Growth in U.S.

After peaking late in 2006, the Houston economy has steadily lost momentum over the past six months. Despite this recoil, Houston still ranks high (in third place) among the 25 largest metro areas in the U.S. in terms of job growth, (+3.1% year over year in June 2007). Major sectors contributing to this strength include construction (+7.0% year over year), professional and business services (+4.4%) and leisure and accommodation services (+4.4%).

The Energy/Petrochemical Sector is the Key Driver

The key driver of Houston’s economy over the past two-and-a-half years has been the energy and petrochemicals sector, which is also the metro area’s major employer. High oil prices and healthy growth of profits in the industry have led to a surge in oil exploration, as well as to an expansion of downstream facilities (refining and chemical manufacturing).

The positive outlook for oil prices and for petroleum energy-related activities in general will continue to support Houston’s demand for labor. It will also continue to make the metro area attractive to job-seeking immigrants from other regions over the next several quarters.

Despite high levels of net migration (with an extra boost from post-Katrina refugees), Houston still holds a moderate ranking in terms of housing affordability — position 107 out of 215 markets — according to the NAHB/Wells Fargo Housing Opportunity Index. However, single-family housing demand, particularly among first-time homebuyers, has been sideswiped by tighter restrictions from sub-prime mortgage lenders. Residential building permits were off by 37% year over year in June, their largest decline in over ten years.

Non-residential Construction particularly Strong at Present

Over the past year, while residential construction has slowed dramatically, non-residential building has exhibited strength. The value of non-residential building permits for new structures in the City of Houston is up by almost 40% year to date compared to last year, while spending on non-residential additions and alterations is up by 46%.

Moving forward, there is a risk that recent turmoil in financial markets will erode both consumer and business confidence in Houston. This could cause growth to pause briefly. However, oil prices are expected to remain in the range of $70 to $75 US. Therefore, the outlook for Houston’s critical energy sector — including oil services and machinery — remains quite positive. This will cause growth in the Houston metro area to continue at a healthy pace through 2008.