I'm in Houston and work as an attorney with only energy clients and my business has been severely impacted. I've also seen the real estate market locally cool over the past 6 months and the trend is down.
How are things going in Dallas, Austin, San Antonio, etc.?
Please don't make the mistake of thinking this is about the big oil companies squeezing out the little guys. This is about Saudi Arabia trying to maintain their market share. Basically this ($50 or less oil) will stop when either the Saudis run out of money or there is a severe cutback in production, further than what we've already seen. Don't forget the Saudis also have a great incentive to keep selling oil at almost any price to prevent Iran from taking market share when Iranian production comes back online, thanks to the lifting of sanctions.
Also in the past we had a good bit of sway with the Saudis but after the end of sanctions that is no longer the case. Saudis are more than smart enough to realize that long term it is definitely in their interests to severely damage US fracking operations. Back to your point about big oil squeezing out the little guy, it would be much cheaper for them to simply buy out the little guys than have a multi year period of cheap oil. Big oil has been cancelling lots of projects and laying off thousands of workers and that is very costly.
One other more esoteric thought, frackers (for lack of a better term) have been borrowing heavily the last year to continue to finance their production, and now a lot of the loans (bonds) they took out are junk. This will have negative effects on all oil companies' ability to get the best rates on loans for sometime to come.
Despite what everyone says about it...I still want a Tesla.
Haha - everyone does say that :)
I'm in Houston and work as an attorney with only energy clients and my business has been severely impacted. I've also seen the real estate market locally cool over the past 6 months and the trend is down.
How are things going in Dallas, Austin, San Antonio, etc.?
I forget what BP member did an analysis of prices and days on market in the energy corridor recently in Houston, and days on market spiked dramatically and prices were down. I would expect more pain, as employment growth in TX has ground to a halt, after the Leading Index of economic indicators fell off a cliff..
However, if oil goes below $20 and there are more bankruptcies in the sector, I would look into it more...
Has been much worse for Wyoming so far..
Like I said last year, I think it's going to be a great time to buy and hold Ben Leybovich style. Only worry is that the stock market is following the oil prices trend so it might be harder to gain financing of properties when you're at the lowest price point in the market.
@J.
@J. Martinundefined I wanted to comment on how much I like your insight into the market and the graphs you assemble to show your point. Very impressive to me.
@J.
@J. Martinundefined I wanted to comment on how much I like your insight into the market and the graphs you assemble to show your point. Very impressive to me.
Thank you Jerry! Really appreciate it. I've seen a lot of your posts over the years, and you've always been a straight shooter, and honest about your own area, which some have a hard time with.. ;) I used to just spout off a lot, which I still love. But since I got organized with my data recently, I thought I'd share some of the things that have popped my eyes open! I can't emphasize enough how @Account Closed pointed out, the state is diverse, but still has many areas at least partially dependent on oil.
And guess what!? Turns out there was another indicator falling off a cliff at this time...
A local Economic Conditions Index for the Houston - The Woodlands - Sugar Land Area..
NOW REAL ESTATE PRICE CHANGES.
I BET THAT APPRECIATION WILL DRAMATICALLY DROP IN THE HOUSTON AREA AND HEAD ON ITS WAY NEGATIVE.. (Prices in red). Remember, this is the growth rate. So there is still plenty of time to get out before appreciation drops to 0% with risks on the downside..
The appreciation rate appears far too high relative to historical
@J. Martin, since your market is also oil related, it's prudent to hunker down including sell off some of your RE holdings. I wouldn't be surprised if you could buy them back in the next couple of years for less. Of course, you've seen it a couple of times so you should know what to do. Best of luck.
@J.
@J. Martinundefined I wanted to comment on how much I like your insight into the market and the graphs you assemble to show your point. Very impressive to me.
And even though I was on the topic of TX, here's a special chart for you Jerry for Wyoming... Fortunately, it looks like the overall appreciation in Wyoming is still positive (the bright red line is above the flat black line). But what do oil prices, the leading index, and the first decline in overall employment in the state tell us about the potential for the path of the red line..? It looks to me like appreciation is going to decline shortly, perhaps turn to depreciation, and a lot will ride on where oil prices, the leading index, and employment lead into home price changes, IMHO..
To @Account Closed 's point, is it worth taking some cash off the table..? I've still been collecting my cash flow and not anxious to sell, but if things go higher, and I started seeing charts like thes, I would be considering.. Who knows? But I like to have a good risk/reward (I also hate transaction costs and taxes). So it's all a balance. But wow. The oil price makes the scales harder to see, but here's another view..
The axes are flipped. Note that the leading index and employment have already gone negative on the left axis. Surprisingly, the data shows the appreciation rate of house prices still rising in red on the left axis. Wow!! Is there a mismatch here?
Jerry, what do you think about the prospect for RE appreciation (or depreciation) in Wyoming? What do you think about the relationship between employment changes and the leading index? (and RE prices?)
I was surprised to see the closeness of these numbers recently..
@J.
@J. Martinundefined I wanted to comment on how much I like your insight into the market and the graphs you assemble to show your point. Very impressive to me.
And even though I was on the topic of TX, here's a special chart for you Jerry for Wyoming... Fortunately, it looks like the overall appreciation in Wyoming is still positive (the bright red line is above the flat black line). But what do oil prices, the leading index, and the first decline in overall employment in the state tell us about the potential for the path of the red line..? It looks to me like appreciation is going to decline shortly, perhaps turn to depreciation, and a lot will ride on where oil prices, the leading index, and employment lead into home price changes, IMHO..
To @Account Closed 's point, is it worth taking some cash off the table..? I've still been collecting my cash flow and not anxious to sell, but if things go higher, and I started seeing charts like thes, I would be considering.. Who knows? But I like to have a good risk/reward (I also hate transaction costs and taxes). So it's all a balance. But wow. The oil price makes the scales harder to see, but here's another view..
The axes are flipped. Note that the leading index and employment have already gone negative on the left axis. Surprisingly, the data shows the appreciation rate of house prices still rising in red on the left axis. Wow!! Is there a mismatch here?
Jerry, what do you think about the prospect for RE appreciation (or depreciation) in Wyoming? What do you think about the relationship between employment changes and the leading index? (and RE prices?)
I was surprised to see the closeness of these numbers recently..
I'm in Houston and work as an attorney with only energy clients and my business has been severely impacted. I've also seen the real estate market locally cool over the past 6 months and the trend is down.
How are things going in Dallas, Austin, San Antonio, etc.?
I forget what BP member did an analysis of prices and days on market in the energy corridor recently in Houston, and days on market spiked dramatically and prices were down. I would expect more pain, as employment growth in TX has ground to a halt, after the Leading Index of economic indicators fell off a cliff..
However, if oil goes below $20 and there are more bankruptcies in the sector, I would look into it more...
Has been much worse for Wyoming so far..
Houston is much more diversified than in the olden days, but there's going to be pain - already is. 2 years ago folks were syndicating 7% economic vacancy underwriting...as if! There's going to be pain. Oil is going to stay in the gutter for a while - Saudis can afford it, and so can the Russians. Iran can't change it... Some interesting stuff coming
I'm in Houston and work as an attorney with only energy clients and my business has been severely impacted. I've also seen the real estate market locally cool over the past 6 months and the trend is down.
How are things going in Dallas, Austin, San Antonio, etc.?
I forget what BP member did an analysis of prices and days on market in the energy corridor recently in Houston, and days on market spiked dramatically and prices were down. I would expect more pain, as employment growth in TX has ground to a halt, after the Leading Index of economic indicators fell off a cliff..
However, if oil goes below $20 and there are more bankruptcies in the sector, I would look into it more...
Has been much worse for Wyoming so far..
Houston is much more diversified than in the olden days, but there's going to be pain - already is. 2 years ago folks were syndicating 7% economic vacancy underwriting...as if! There's going to be pain. Oil is going to stay in the gutter for a while - Saudis can afford it, and so can the Russians. Iran can't change it... Some interesting stuff coming
@J. Martin I have seen two major oil busts in Wyoming before. They are pretty bad. Guys going from making $20 per hour decades ago to no job or a $4 an hour job. I expect a very similar result. The ones who lost their jobs can live off of savings and unemployment for about a year. The 4 wheeler, boats, camper trailers, and snowmobiles will get sold off, and eventually they will sale the $50K pickup truck for take over payments because they don't have the $700 per month. If the oil field has not picked back up they will tap into their retirement, sell off most of their 20 guns, and eventually try to sale their house when they cannot make the payments. Some will get it done, those with little equity will end up in foreclosure. The oil field service companies will have even more layoffs than the drilling and production companies. Machine shops, mechanic shops, even clothing stores and restaurants will lose a huge part of their business. By the third year house sales drop off pretty badly and you see vacant houses as folks who moved here from other states return home or move in with their folks, or rent apartments for a third of what their house payments were. Mobile home parks will have dozens of empty trailers from folks who just packed up and left. In bad cases you will see downtown businesses boarded up. It is hard watching towns bleed and die. Eventually gas prices go up and the oil field begins adding a few jobs and money loosens up. It takes several years for this to happen. I would suggest in 2 to 5 years you load up a truckload of cash and come out to see me and I will take you real estate shopping and you will find bargains galore. Places like Cheyenne have diversified their economy and never had a lot of oil boom will be fine. Places who rely on super wealthy folks like Jackson will be fine, and even tourist spots like Yellowstone, and ski resorts will be OK. Most of the other areas will take a beating. You may not see an overall huge drop, but guys with cash will get great deals left and right.
I invest mainly in San Antonio but also have rental units in Houston. Here are my thoughts:
San antonio: market is solid for both rentals and flips. It has cooled down in the south san antonio areas where the eagle ford shale are was heavily hit. However I mainly invest close to downtown and in the northern east section and I see no significant decline in the rental demand. It's also tough to purchase Overal: market is solid right now.
Houston: I can't comment on purchases because I have bough in Houston in a few years. However, rental demand is still strong in the Northwest area. It may be because I have rentals mainly in B+ neighborhoods with excellentschools. I haven't been able to raise rents as I have been doing in San Antonio however and so that's why I think the Houston market has cooled a little.
Finally: if you are diverse in REI it shouldn't matter whether the market cools down or become hot. If prices fall, it's a great time to pick up properties at a discount. Just don't become over leveraged and maintain a cash flow positive situation. This insulates you from a down market.
Conversely if the market becomes hot and prices appreciate then you just ride that wave. I.e. hold on to your property and refinance to get cash out ir ell your properties if you need cash.
Happy investing.
Dan
Hi Dan, please join our discussion on great rental properties for 2016 in Houston 2016 Houston Buy & Hold Rental neighborhoods in $70-150k Range? We'd love your input even though you haven't purchased in a few years, your experience is wanted.
Thanks!
We went from discussing oil in REAL ESTATE INVESTING to electric cars/TESLA.
I love both things
#1 REI - Holding off on investing in Texas for the moment but have 4 props mostly in houston. There are always good deals anywhere and anytime but certain environments make it a bit more risky. Either you need an UNFAIR advantage to find good deals over the competition or work 10X harder to find the good deals before anyone else. I would rather go elsewhere for now and be less risky and work less to find the good deals.
#2 Electric cars - I live in SF bay area so I'm used to see TESLA, Leaf, fleet of other electric cars and plug-in hybrids. I recently bought myself a Chevy Volt -2016 and absolutely love it. Sticker was $35,000 but after GM rebates $2000, costco pricing, fed/state tax rebates/credits, I essentially bought the car around $22,000! But I think I would still pay around $30,000+ for this car.
Now the carpool lane sticker was really my #1 concern when I bought the car but I just love the ability to plug-in at home and tremendous savings at the pump/electric bill.
I am definitely going to put myself in line for the TESLA model 3 when it comes out 2018 or so.
Leading indicators of rig count (now <500) and building permits (-31% Y/Y) have translated into current losses (updated 3/4/16) per http://www.houston.org/pdf/research/quickview/EconomicIndicators.pdf
The 14.1% drop in retail sales Y/Y should be alarming. Just an observation and my opinion as an outsider, since I have no Texas property nor any ambitions to own in TX (or any other state besides NC, SC) regardless of their economy. Nothing to do with TX. Outside the Carolinas... I'm just not interested right now.
We went from discussing oil in REAL ESTATE INVESTING to electric cars/TESLA.
I love both things
#1 REI - Holding off on investing in Texas for the moment but have 4 props mostly in houston. There are always good deals anywhere and anytime but certain environments make it a bit more risky. Either you need an UNFAIR advantage to find good deals over the competition or work 10X harder to find the good deals before anyone else. I would rather go elsewhere for now and be less risky and work less to find the good deals.
#2 Electric cars - I live in SF bay area so I'm used to see TESLA, Leaf, fleet of other electric cars and plug-in hybrids. I recently bought myself a Chevy Volt -2016 and absolutely love it. Sticker was $35,000 but after GM rebates $2000, costco pricing, fed/state tax rebates/credits, I essentially bought the car around $22,000! But I think I would still pay around $30,000+ for this car.
Now the carpool lane sticker was really my #1 concern when I bought the car but I just love the ability to plug-in at home and tremendous savings at the pump/electric bill.
I am definitely going to put myself in line for the TESLA model 3 when it comes out 2018 or so.
The $1000 deposits for the Model 3 start on Mar 31 in person at the Tesla stores.
http://www.techinsider.io/tesla-model-3-deposit-is-1000-2016-2