Category Archives: Market

Treasury Market Volatility and CRE Opportunities

Treasury Market Volatility


Treasury volatility in the U.S. has caught on fire in 2019. The U.S. 10-year Treasury dropped as low as 1.477% on August 15th and slipped past the lowest level that we have seen since October 2016. Earlier in the morning on August 15th, the 30-year Treasury bond fell below 2.00% (1.943%) for the first time ever. To add to the drama of August, on the 14th, the yield on the 10-year Treasury inverted with the 2-year Treasury which has preceded every single recession in U.S. history. Most mainstream economists agree that Treasury volatility is not going to subside in the near future, so where does that leave us moving forward?

As noted in Table 1, 2019 has seen major events relating to the U.S. treasury “yield curve”. The Treasury yield curve (3-month T-bill vs 10-year Treasury) inverted on March 22nd, 2019, and since that day, we have seen continued volatility in the Treasury market. Before we dive into the implications of continued Treasury volatility on the commercial real estate market, let’s review as to why, and how, the Treasury market is priced.

Table 1.

Market Variables


The Treasury marketplace is best described as a bid-auction process with the main goal of providing institutions and governments around the world the opportunity to obtain “risk-free” interest. This interaction between institutions and governments is dictated by geopolitical events (i.e. China, Brexit, Tariffs, Trade, Iran), global central banks (i.e. $15 trillion in negative-yielding bonds including Germany, France, Switzerland, Netherlands, and Japan), the U.S. Federal Reserve, inflation expectations, global fiscal policy, and @RealDonaldTrump’s Twitter account. Currently, we are in a point in the market cycle in which most of the factors mentioned above are experiencing heightened uncertainty in addition to a plethora of weakening global economic data. To the contrary, the U.S. continues to see record employment, low inflation, better than expected consumer spending and consumer confidence, better than expected corporate earnings, and a high probability of future rate cuts by our Federal Reserve. 

Implications and Opportunities for CRE


At this point, it seems as though all of the wires are crossed. Volatility continues to be a result of investor fears in the global marketplace. So what does this mean for commercial real estate? Well, if you are holding onto floating-rate debt, you may see some relief in your debt service payments as well as an increase in your net cash flow. Additionally, if you are an individual who is seeking fixed-rate debt; it is a very favorable time to take advantage of the low-interest rates and low floor rates that are being offered in the marketplace today.

In conclusion, we are in uncharted territory when it comes to our Treasury market. What we do know, for now, is that the Fed will continue to be accommodative and believes that an increase in the economic stimulus (lowering of Fed Funds Rates) can extend the current duration of our market expansion. This means that the cost of capital and the cost of borrowing will be in historically favorable conditions for those individuals looking to acquire or refinance existing debt. As of now, the spread between market cap rates and long-term Treasuries are in a healthy range. Historically, this suggests that the commercial real estate market is still in a stable and healthy position for the near-term. Reach out to one of the Q10 | KDH mortgage banking professionals to talk more about how you can make the most of today’s interest rate environment.

Notable Current Events


  • The U.S. 30-year Treasury yield falls below 2% for the first time (Aug 15th)
  • The U.S. 10-year minus the 2-year yield has inverted for the first time since August 2007
  • Japan surpasses China as the largest foreign debt holder reaching $1.123 trillion with China standing around $1.113 trillion
  • 10-year Treasury has dropped approximately 115 basis points from its January 18th high of 2.79%

Houston Economy at a Glance – August 2019

The August 2019 issue of the Houston Economy at a Glance courtesy of the Greater Houston Partnership has been released. This month’s highlights were compiled by Moody Rambin:

  • Metro Houston created 44,400 jobs in the first six months of ’19, according to the Texas Workforce Commission (TWC). That puts Houston on track to gain 80,000 to 90,000 jobs this year.
  • If the Partnership’s estimates prove accurate, the region is on track to create 65,000 to 75,000 jobs in ’19.
  • Five sectors account for most of the YTD job growth: food services and drinking places, specialty trade contractors, mining and logging, architecture and engineering, and health care and social assistance. Combined, they’ve created 35,700 jobs. Those gains have helped offset losses in retail, public education, employment services, building construction, and information.
  • TRADE: After enjoying double-digit growth for the past two years, trade via the Houston-Galveston Customs District has slipped to low, single-digit growth. Factor in 1.6 percent inflation over the past 12 months and the value of Houston’s trade is essentially flat.
  • COMMERCIAL REAL ESTATE: Houston’s office market has seen positive absorption in five of the last 12 quarters, according to NAI Partners. The market has more than 60 million square feet of vacant or soon-to-be-vacant space. That’s a vacancy rate of 25.9 percent. In a healthier market, the rate would be in the low- to mid-teens.
  • Tenants absorbed only 4.2 million of the 8.9 million square feet of industrial space delivered so far this year, according to NAI. The vacancy rate (empty space plus soon-to-be empty) has jumped from 8.0 percent in Q2/18 to 10.3 percent in Q2/19.

This document can be viewed here.

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Houston Economy at a Glance – July 2019

The July 2019 issue of the Houston Economy at a Glance courtesy of the Greater Houston Partnership has been released. Highlights of this month’s update include:

  • The U.S. Census Bureau posted population estimates for U.S. metros in April. Metro Houston has a population of nearly 7.0 million, a gain of just over 1.0 million since ’10. The Bureau released estimates for cities in May. The city of Houston has a population of 2.3 million, a net gain of 232,000 since ’10.
  • All nine counties in the Houston metro area gained population over the past eight years. Harris County added the most residents, followed by Fort Bend, Montgomery and Brazoria. Fort Bend grew the fastest, followed by Montgomery and Waller Counties. Among all U.S. counties, Fort Bend ranked as the nation’s 10th fastest growing from ’10 to ’18, Montgomery ranked 18th, Waller 41st, Chambers 52nd and Brazoria 83rd.
  • EMPLOYMENT – THE SHORT VIEW
    Metro Houston created 79,800 jobs, a 2.6 percent increase, in the 12 months ending May ’19, according to the Texas Workforce Commission (TWC). Employment now stands at 3,163,600, the highest point on record. At the current pace of growth, the region should top 3.2 million jobs by year’s end.
  • The recovery in the oil and gas industry began in earnest three years ago this summer. Crude prices began improving in March ’16, the rig count in May ’16, and bankruptcies plateaued in the second quarter of the year. But energy employment didn’t see an uptick until January ’17 and continues to struggle. From peak to trough, the sector cut nearly 93,000 jobs. While pipeline and liquid natural gas projects have helped engineering recoup all its losses, upstream and manufacturing have recovered only a fraction of theirs.
  • FOREIGN TRADE
    Houston’s exports have grown from $80.0 billion in ’08 to $120.7 billion in ’18, according to the U.S. International Trade Administration.1 No other metro area has experienced such growth over the period.
  • FOREIGN DIRECT INVESTMENT
    The Partnership has tracked 659 deals where foreign-owned companies announced plans to establish or expand operations in Houston. The value of the investments was made public for only 315 of these deals, but the cumulative amount disclosed is significant—$33.2 billion. These investments originated from 36 countries and cover 63 industries across 11 broad sectors.

This document can be viewed here: Houston Economy at a Glance – July 2019

Please contact us if you have any questions about the information provided.

Houston Economy at a Glance – May 2019

The May 2019 issue of the Houston Economy at a Glance courtesy of the Greater Houston Partnership has been released. Highlights of this month’s update include:

  • The metro Houston population grew by almost 92,000 residents in 2018, bringing the region’s population to nearly 7 million.
  • International migration to metro Houston reached a record high of 44,535 people in 2018, topping the previous record of 43,094 set in 2017.
  • Metro Houston ranked third in overall population growth, third in net natural increase (births vs. deaths), and fourth in international migration in 2018.
  • Almost 68,000 jobs were created in metro Houston in the twelve months ending March 2019, a 2.2% increase.
  • The Purchasing Managers Index (PMI) was 64.0 in March 2019, the highest reading in six years. Readings above 45.0 signal overall economic expansion in Houston over the next three to four months.

This document can be viewed here: Houston Economy at a Glance – May 2019

Please contact us if you have any questions about the information provided.

Houston Economy at a Glance – April 2019

The April 2019 issue of the Houston Economy at a Glance courtesy of the Greater Houston Partnership has been released. Highlights of this month’s update include:

  • The Texas Workforce Commission reported that 72,600 jobs were created in metro Houston in the 12 months ending February 2019, a 2.4% increase.
  • Domestic oil production reached 12 million barrels per day (mb/d) in March 2019 (an increase of 1.6 mb/d over March 2018) according to the U.S. Energy Information Administration (EIA). The U.S. now leads Russia (11.6 mb/d) and Saudi Arabia (10.1 mb/d) as the world’s top oil producer.
  • The latest forecast from The Perryman Group states that growth in metro Houston will outpace Texas and the U.S. through 2023. The projected growth will add 600,000 residents, 340,000 jobs, and $100 billion to real gross product.
  • Building permits for the City of Houston were up 32.1% in February 2019 ($535.2 million) as compared to February 2018 ($405.1 million). Commercial permits increased 66.1% to $361.8 million.

This document can be viewed here: Houston Economy at a Glance – April 2019

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YE 2018 Texas Market Update

Our YE 2018 Texas Market Update has been released. Inside, you will find an overall market outlook, a breakdown of market highlights for Houston, Dallas-Fort Worth, San Antonio, and Austin, as well as graph data.

Feel free to contact us if you have any questions about the information provided.

Houston Economy at a Glance – January 2019

The January 2019 issue of the Houston Economy at a Glance courtesy of the Greater Houston Partnership has been released. Highlights of this month’s update include:

  • The length of the current U.S. expansion (114 months) has led some economists to question if the U.S. is overdue for a recession. Following comments from Federal Reserve Chairman Jerome Powell and forecasters at the National Association for Business Economics (NABE) in December, this has shifted to an outlook for slower growth instead of “no” growth.
  • Houston leads the country in tech hiring plans for 2019, according to a Robert Half Technology survey of 2,800 tech decision-makers across 28 U.S. cities. Eighty percent of the Houston respondents said that they plan to expand their teams this year.
  • Harris County has the nation’s third-largest economy, according to data from the U.S. Bureau of Economic Analysis. Adjusting for inflation, the county economy grew 10.9% ($41.3B) from 2012 to 2015.
  • Growth in the Houston Business-Cycle Index was 6.8% during the three months ending in September 2018, continuing its healthy expansion from the first half of the year.
  • The spot closing price of West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, averaged $66.34 per barrel through the first 11 months of 2018, a 32% increase from the $50.25 average price for the same period in 2017.
  • The drilling rig count held steady at 1,075 drilling rigs working in the U.S. during the first week of January (up 151 rigs, or 16.3%, from the same week in 2018), according to Baker Hughes.

This document can be viewed here: Houston Economy at a Glance – January 19

Please contact us if you have any questions about the information provided.