S&P bullish on the state of Texas
Texans like to brag that everything in their state is bigger. Now New York-based Standard & Poor's, in a new research report, pretty much agrees with that assessment. The ratings agency said the Lone Star State, with its large and diversified economy, continues to outperform the nation in terms of housing, economic activity and employment. "By most measures, Texas has been one of the most rapidly expanding and diversifying economies in the nation over the past decade. The state's growing population, coupled with what we believe is a relatively low cost of living and of doing business, has fueled strong growth in industries and sectors that just two decades ago had a limited presence in the state." Analysts also think Texas is poised to "recover earlier and at a faster rate than most other states" given its continued population growth and business-friendly environment. The ratings agency did note the state, like many others, has a budget gap and also mentioned pressure on cash flows from the public school financing system — a growing portion of which the state is required to fund. In terms of housing, the Texas has a lot going for it, S&P said. The housing sector, analysts said, "will likely provide another source of strength over the medium term." While the state's housing sector was not exempt from the overall drop in activity and prices, the decline has been significantly less pronounced than in many other states. The sheer availability of land and limited restrictions on new development kept home prices in check during the peak of the housing boom, S&P noted. Average home prices in Texas increased about 32.4% from 2000 to 2006, compared to a 99.3% jump in California and an 84.3% boost in Arizona during the same period, according to the Federal Housing Finance Agency state level house price index. Even since the housing market crash, "average home prices in Texas have generally performed better than the nation and have remained relatively unchanged since 2008," S&P said. More restrictive banking regulations may have staved off some of the housing crisis in Texas, S&P said, specifically referring to home equity lending restrictions in the state. "In many states, homeowners' ability to easily tap into their increasing home equity through home equity loans and lines of credit for up to 100% of the value of their home helped fuel consumption growth and further contributed to the rise in home values. However, Texas homeowners are generally required to own at least 20% equity in their homes before they can access home equity loans. In our view, this limited the excessive monetization of homes," analysts said. IHS Global Insight Inc. predicts average home prices in Texas will decline about 2.6% this year, but will quickly recover, posting a 3.1% gain in 2012 and climbing 3.8% in 2013. S&P currently rates Texas' credit at double-A-plus with a stable outlook and the state's appropriation debt at double-A. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.