If there is any city that is the headquarters of the American oil industry, that city is Houston. Home to 31% of all U.S. jobs in the oil and gas industry, nearly 40,000 Houston residents rely on the oil and gas industry for their income. The current oil glut is causing serious problems in Houston jobs and real estate.
With the recent drop in oil prices, the oil economy has been shaken. Thousands of Houston oil and gas workers have lost their jobs, and the downstream effect on housing is catching up.
Wealthy Neighborhood Prices Falling Fast
When oil is flying high, Houston oil executives receive multi-million dollar annual bonuses. Getting used to that lifestyle is easy, but getting used to living without a large annual bonus can put a cramp on their style.
Neighborhoods like River Oaks have seen the average home price fall from $2 million in 2014 to $1.3 million in early 2016, according to Reuters. In a neighborhood with $10 million homes, it is easy to see how the oil glut and related economic changes impact the wealthiest Houston residents.
Not the First Time
While news cycles have short memories, layoffs like this have been seen in Houston in the past. In the 1980s, the city lost 13% of all jobs in an oil price crash. Roughly 5,000 energy industry firms call metro Houston home, so the losses may be far from over.
In more affordable parts of the city, housing prices have followed the wealthier neighborhoods. City-wide, housing prices fell 2% in January. Sales prices of homes valued at over $500,000 fell 9% in the same period.
The Realtor’s association reports, however, that the median home price in Houston is still 5% above one year ago. With more layoffs on the way, will that number hold?
The Oil Glut Ripple Effect
Watching fellow employees lose their jobs is shaking the confidence of other workers in the sector. Just last week, Anadarko Petroleum announced a 17% layoff. Watching 1,000 colleagues lose their jobs in a day does not encourage energy workers to buy new luxury items like cars and homes.
Even though many workers jobs, particularly outside of the energy industry, are safe. Houstonians are acting with extreme caution when making spending decisions, adding fuel to the fire of economic stress in the region.
A Bargain Opportunity?
As seen in the past, oil prices never stay down forever. While we do not know how long the current oil price glut will last, the Houston economy will eventually recover.
When such an opportunity arises, savvy real estate investors may find bargain homes waiting for them across the city. However, investors have to be able to weather the entire energy industry recessions before they will see a return on that investment.
Further, if wealthy investors across Houston also hold energy industry investments, they may have to sell other investments, further pushing down real estate prices before they start to bounce back.
How long will the current oil glut and energy prices last? Only time will tell. And until then, Houston’s real estate prices may remain in the dumps.