Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
While reading this article about falling oil prices, I couldn't help but wonder what, if any, effect it would have on the real estate markets in energy-heavy local economies like Midland-Odessa and other West Texas cities, not to mention Oklahoma and the Dakotas.
Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
11y
As soon as the Saudis succeed in destroying the Iranian economy and start cutting production to match demand, prices will start to rise. Once some sort of meaningful economic recovery happens in the developing world, they will rise further.
The Saudis have not cut their production, for basically the first time ever when faced with sharply lower demand, because they are using oil as an economic weapon against Iran (and maybe Russia, at our behest). Oil prices below $100 bbl are very, very bad for Russia and Iran. Oil prices at $65 mean Iran cannot feed its people.
Thanks to increased US production and new technologies, there is a spread that the Saudis can exploit. They can hurt the Iranians and Russians who need $100 bbl, while not angering the US, where producers will survive with $65.
And after that all plays out, prices will rise, probably by a lot.
Real Estate Investor · Alexandria, LA · Member since 2014 · 70 posts · 18 votes
11y
if this happens rental incomes should drop a little because their will be less people in the market for rentals in those select cities. I work in the oil and gas industry (Gulf of Mexico) and there is a slow down with the decline of oil prices. Like anything else everyone just have to weather the storm.
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
11y
We are seeing some impact here West of Ft Worth. Most of the natural gas exploration moved on a couple years ago. There is still some work going on and the maintenance work like water haulers and such (on of my tenants) so I am not too worried. It is effecting the general economy some but more of a return to normal than the extra boost of money that the drilling craze brought. I am less interested in low end rentals because of the uncertainty though since well crews were a big factor in that market.
Real Estate Investor · Oklahoma City, OK · Member since 2014 · 39 posts · 3 votes
11y
It's not fun looking back to the '80's energy crash here in Oklahoma.
I feel here in Oklahoma we do have a delayed reaction to border states on economy. With that said we are a huge energy state and of our higher end rentals we manage for clients, majority of them are leased by oil employees. Which is why I preach to my clients to have a mixed back of low, medium and high rentals. I would say for every 1 high end home they should have 1 medium and 3-4 low end (not war zone) properties. If the energy sector should slow down in our state, there is never a shortage of low to medium tenants willing to rent. This ensures that they can still make the mortgage payments on the high end home with the cash flows from lower end (more profitable cash flow) properties.
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
11y
I think most people have learned their lesson in my area. Even with the "boom" of the past few years, there has not been much new development; at least in the smaller towns where I invest East of OKC. We were running over capacity when the pipeline came through, but that has ended now. I actually had to wait a month to rent out my last vacant unit. I guess that is going to become more common.
Investor · Houston, TX · Member since 2013 · 314 posts · 146 votes
11y
I am in Houston, and all of my friends that I speak to in the industry say Houston will keep on chugging along as long as oil prices are above $65-70 a barrel. That is the lifting costs of many of the projects in this neck of the woods.
Houston learned it's lesson from the 80's and very much diversified its economy, so with oil prices high, there is a huge boom and abnormal job growth, with moderating oil prices, there will still be growth, just not a fast.
Right now Houston has a housing shortage in both single family and multi family (multi family is beginning to top out in the A class). And Class A office is very much being driven by the energy sector, so that is where you will see the first cracks if and when they do come.
Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
11y
As soon as the Saudis succeed in destroying the Iranian economy and start cutting production to match demand, prices will start to rise. Once some sort of meaningful economic recovery happens in the developing world, they will rise further.
The Saudis have not cut their production, for basically the first time ever when faced with sharply lower demand, because they are using oil as an economic weapon against Iran (and maybe Russia, at our behest). Oil prices below $100 bbl are very, very bad for Russia and Iran. Oil prices at $65 mean Iran cannot feed its people.
Thanks to increased US production and new technologies, there is a spread that the Saudis can exploit. They can hurt the Iranians and Russians who need $100 bbl, while not angering the US, where producers will survive with $65.
And after that all plays out, prices will rise, probably by a lot.
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
11y
Interesting thought Richard C. I hadn't really considered the political implications. It certainly wouldn't be the first time that oil producing countries used oil to further their agenda.
I find it funny that we Americans never learn. When prices are high we conserve, which drives prices lower. Then as soon as prices go down, we go back to our old habits. I read a story today that said sales of gas guzzlers spiked in October. Jeep reported an increase of 56% of their SUV line.
Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
11y
$70 is the lowest you want it in these markets. Service companies will slowly layoff admin and other people.
The North Dakoda oil is more expensive then that which could cause major reductions in production. This in turn will mean layoffs and hiring freezes. Therefore, no jobs meaning no growth. Home prices will drop a lot from the inflated prices in the Houston area. It will be time to buy more houses before interest rates start going up too high.
I don't know who told you $65 but that will cause a serious issue. North Dakoda oil fields have to truck in water and power to drill. Plus housing is very costly right now due to the lack the infrastructure of the areas where they are drilling.(if you are in the development of the housing in North Dakoda bail! Then buy back in as prices hit bottom. You will know when.)
Real Estate Investor · Cheyenne, WY · Member since 2014 · 71 posts · 37 votes
11y
The smaller towns are at more risk for a big bust. I have been thru it before in Wyoming and it's not a lot of fun. The booms are though! I used to hunt a lot in western North Dakota and would say they could be in trouble. I would guess Houston, San Antonio, Dallas, and Northern Co have enough going for them that while they may see a slowdown or drop aren't going to see the severe busts. I don't know enough about Oklahoma to comment.
The most interesting thing I remember seeing in a down cycle is how people refuse to lower prices and instead properties sit and sit. When I moved to Rock Springs in 99 there were hundreds of properties for sale and no one would budge on price. I bought a place for 89 put a ton of work into it, sold it in 2002 for 82 and the new owners sold it in 2004 for 192 when there were less than 2 homes listed at any time. Small towns just have no ability to absorb demand. I am very cognizant to watching the booms!
Fortunately, Houston actually learned the difficult and expensive lesson for the 1980's, and the city took serious steps to diversify the economy there. Although there is - without question - a very heavy O&G presence, Houston has also become a center for chemical manufacturing, engineering, research, etc. A continued decline in oil prices will slow the economy, not incapacitated it again.
West Central Texas - Abilene, Lubbock, Midland/Odessa and the small towns in their vicinities will see much greater impact than Houston. The northern portion of West Texas, known collectively as the Panhandle & High Plains areas are much less oil dependent and more agricultural based, with the energy production relating more to natural gas. Those areas will actually see a huge benefit from the reduction in oil prices, as it will result in a direct reduction in the cost of crop production, since irrigation is the largest energy related expense and often prevents growers from producing crops requiring significant irrigation.
DFW diversified after the real estate crash in the late 70's, but the DFW economy was never heavily oil dependent. At present, it is even less dependent on energy & industry. DFW is a major business and technology hub now, so I don't anticipate much if any impact to the Metroplex.
Specialist · Austin, TX · Member since 2014 · 109 posts · 95 votes
11y
I lived in Houston for 15 years and have many friends in energy and engineering, and I agree that it will weather any decline in oil prices fairly well. Don't forget that Houston also is a global leader in medicine, and the Texas Medical Center is the largest medical center in the world (it's actually bigger than all of downtown Dallas, for those keeping score in the long-running Houston vs. Dallas feud). And that doesn't take into account the massive medical complex expansion--and thus new jobs--in all of Houston's suburbs.
@Eric Tait is right that if there is any softening at all, it will likely be felt first in commercial office space, as that's what was hit hardest during the Enron, et al. busts in the early aughts, although that was arguably about mismanagement unrelated to energy prices.
Keep in mind that the major energy companies are ridiculously profitable at any oil price. It's also important to remember that the lower gas prices are, the more money people have in their pocket to spend on other items, which stimulates the economy. In car-dependent cities like Houston and Dallas, where people spend a lot of money on their commute, lower gas prices will definitely improve consumer confidence and pocketbooks, thus potentially offsetting any negative effects from a slight downturn in the energy sector.
Hey Chad. Hope things are going well for you. You're right on about both Houston & the extra money in people's pockets. That goes for all of Texas, as it's a driving state.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
11y
I would think there could be a expansion hold, hiring freeze but not much downsizing even if prices stay low. I have never heard anyone say short oil companies longterm. I would imagine they would keep engineers hired on even if no immediate projects just to keep the talent in place. Thanks, Matt
Real Estate Investor · Laredo, TX · Member since 2014 · 52 posts · 9 votes
11y
This is a very interesting thread... I was surprised to learn that the break even cost for producing oil in the Texas area is estimated to be below US$65-70/barrel. I was reading an article the other day (http://www.scmp.com/business/commodities/article/1...) about Saudi Arabia which related to what @Richard C. said:
"After oil prices began tanking in the late summer, the country was expected to reduce production as per usual. But instead, last month Riyadh announced that it will focus on "maintaining market share" rather than cutting supply to support price."
I guess this is because certain other suppliers have taken a big chunk of the market away? As @Richard C. said, this has never happened before.
Anyways, back to real estate... from the little bit of research that I've done... it appears that producing oil in places like Texas, with all of the new technologies (which I don't know too much about), is actually cheaper than most places in the world. If that's the case then I would only imagine that there would be more growth.
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
11y
@Fred Heller, nice thread. I have seen two major busts in the oil economy. I am talking boom towns where rent went up 400 to 600% in a year or two, to every third business being boarded up and folks renting space for 100$ over utility costs. The housing bubble is nothing compared to oil boom areas during the bust cycle. That is the only thing that has kept me from buying in the boom areas currently. Everything I see tells me we are looking at at least a 10 year cycle which would allow an investor to recoup their investment. The problem is I have seen thousands go bust. I am unwilling to gamble 20 years of slow and steady building for a shot at a quick profit. The first thing that slows down is drilling. That is the most expensive part of getting oil. The next thing that shuts down is service companies. the ones who inspect pipe, install casing, move rigs, build locations, complete wells, etc like Haliburton. Then restraunts, downtown stores, like auto parts, sporting goods, even bars and service stations. By then most of the moble workers leave in droves or go on unemployment and welfare and stop spending money. Housing sales and rental income drops to nothing. I doubt any short term drop in oil will effect any of the oil company spending. A prolonged drop would definitely cause some cutbacks in drilling. That actually will take the biggest edge off of growth. When oil prices drop coal prices drop as power plants switch over the the cheaper fuel. Probably 50% or more of the smaller independant companies would cease to exist if oil dropped to 65$ a barrel for over a year. The big companies would adapt.
Real Estate Investor · Laredo, TX · Member since 2014 · 52 posts · 9 votes
11y
With prices now below $50, what are investor's plans for the real estate market especially those that are in states where the oil & gas industry plays an important role? I have been researching the South Texas market and planning to make an investment soon. Some people have told me to hold off for the time being.
Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
11y
i am building cash and waiting for the fall. People have not really started losing their jobs yet. As they do, property values will fall due to the sale of their homes and newbie investors that jumped in to far.
Personal Opinion:
I would wait on any area that has oil businesses or support companies. Things will go down. But if you are a long haul investor and can weather the storm buy now. It like the stock market, don't watch the day to day market watch the future potential. Things go up and down but real estate has and will always go up. It's just a matter of when you buy and when you sell. If you can hold it for 5 years and cover costs buy now. If you want to buy cheap wait. Either way thing will go up, just look at the 80s rebound.
Real Estate Investor · Los Gatos, CA · Member since 2014 · 226 posts · 89 votes
11y
When gas prices are falling people usually jump for joy and celebrate, they start traveling more and overall most are happy, except for Houstonians :-)
Houston job market is heavily relying on the oil industry, and falling prices usually mean the job cuts are starting to happen. I agree with the diversification, but nevertheless, oil talks in Houston.
We have been tracking the rental market for the past 8 years and has compiled a live Rental Market report covering all major metropolitan areas in the nation.
Apparently Houston is not yet feeling the heat from the falling oil prices as the rental market finished 2014 strong with an average of 11% rent increase over the past year.
Is so appears that the past 12 month trends have been inching up every month across all bedroom types from Studio to 5 bedroom apartments and houses.
Rental Price movement over time is an important index that shows the market sentiment, and for Houstonians this sentiment might soon start to change with the announced job cuts from major oil companies.
I have talked to a couple of local real estate investors and they have also started to be anxious in anticipation of the oil market impact on Houston’s job market and moved to hold position, down from the feverish buying spree that has occurred over the summer.