Will Oil Declines Hurt Texas Housing? Not If We Could Export Oil…
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It’s the elephant in the room: could the energy downturn put the brakes on our Texas’ housing boom?
Texas has enjoyed one of the strongest housing markets in the nation. We were barely nicked by the recession. Couple of reasons for that:
1. Our strong energy market kept the jobs going and…
2. Texas by law will not allow homeowners to borrow too much against their homes. Therefore, when values drop, we are not so far underwater on debt once owners have to start paying off those home improvement loans. This is what KILLED the sand states.
But will low oil prices kill our real estate market?
“Our data shows that states with high levels of employment in the oil extraction and related industries continue to have high risk scores,” the company’s director of risk analytics, Ralph DeFranco, said in the report. “North Dakota, Oklahoma and Texas continue to have elevated risks due to their focus and exposure to the oil sector.”
Texas has about a 33 percent chance of a housing decline, the report said, because of “the industry-wide drop in oil and gas exploration.”
Arch Mortgage Insurance put the Dallas-Fort Worth area and San Antonio at the top of its list of cities with “moderate” risk for a softening on the housing markets. The analysts say there is a 42 percent chance of a weakening in those cities’ home markets in the next two years.
Of course others have also predicted a slowdown in home prices and sales, but so far, no go, mostly due to low inventory. North Texas home prices are up 9 % this year, one of the biggest increases in the country. Our under $2 million market is so hot sellers get multiple offers and over-list sales prices. sales. If anything, Houston and Midland-Odessa will feel the pinch because their economies are so oil centric and dependent.
But then I heard economist Bud Weinstein, Associate Director of the Maguire Energy Institute at SMU, lecture about falling oil prices Wednesday evening: “Will Falling Oil Prices Derail the Shale Revolution and America’s Quest for Energy Independence?”
Clearly, we have an over supply of oil right now, said Professor Weinstein, so much that it may even become too pricey to store it. U.S. crude-oil reserves are at their highest level in more than 80 years, and spare storage capacity is dwindling around the globe. That renews even more fears about falling prices. Our U.S. storage capacity is getting full!
The economic benefits of cheap oil is like a raise for middle class households, and a profit bonus for airlines, said Weinstein. Heating costs are lower for the Yankees, low oil prices could bring about a revival of US manufacturing in the rust belt, and create smaller trade deficits. Cheap oil is good for almost everyone who is NOT in the oil business. Clearly, with less drilling — oil must sell for at least $53ish a barrel in the Permian Basin to cover production costs, said Weinstein — there will be fewer oil industry executives buying big homes. Some may even sell. Already I’ve heard of energy firm cutbacks curbing real estate sales in Houston.
But what if the oil companies could SELL their oil to other countries? Bud Weinstein tells us the U.S. is virtually independent when it comes to oil, a goal many a president has wanted us to achieve. OPEC only accounts for 7% of US oil consumption. We are also lowering demand for oil, for several reasons: we have become more efficient in our consumption. And while the demand for oil has increased from Asia and South America, those countries’ growth rate is only 6 to 7% a year currently. Europe is in it’s third recession. Even the Brazilian economy is down.
What if we were allowed to export oil? Bud Weinstein suggests that banning the export ban created 40 + years ago might work for protecting oil prices or at least getting rid of all this inventory. Might also help the housing markets. When asked if he thought oil would ever hit $100 a barrel again, Weinstein spoke instead of a “Happy Price” per barrel that would allow profit and cover production expenses: $70 to $80 per barrel.
Just read that U.S. crude settled at $59. 63 a barrel, but analysts are skeptical of a continuing upward rally. U.S. economic growth was meh in the first quarter, and as Bud said last evening, OPEC has no intention of slowing output.
