- Although Houston has a more diversified economy, signs of distress in the housing market are surfacing.
- In a recent report from valuation services company ProTeck, Midland and Houston are two Texas cities showing fallout from oil industry layoffs.
- Houston is not faring as badly as Midland is.
Taken together, Houston-area’s housing indicators give analysts pause.
Even though the Texas of the last boom-and-bust energy cycle is more economically diversified, signs of trouble increase every day in the housing market.
While the rest of the nation is rejoicing over cheap gasoline, those who extract oil from the ground are not rejoicing.
According to an analysis by ProTeck Services, the Midland and Houston housing markets, among others in The Lone Star State, are showing signs of distress.
In their ranking of the bottom 10 real estate markets, Texas takes six spots. Those markets are Abilene, El Paso, Houston, Killeen, McAllen and Midland.
In their April 2015 Home Value Forecast oil at that time was $55 a barrel. Now, it’s trading at about half that. And, with Iranian oil set to debut, it could fall further. The bottom 10 markets were far different in that report than they are now.
The report’s authors, and many others in and surrounding the energy industry agree that the Texas economy has indeed diversified since the oil decline in the 80s. Based on that strength, the Federal Reserve Bank in Dallas forecasted 1.4 percent job growth in Texas for 2016, but only if the price of oil rebounded to the $40 to $50 per barrel range.
Experts warn that if the current price holds or gets even worse (for the oil industry, that is) Texas could experience its first negative job growth since 2009.
Midland housing market showing signs of trouble
Take Midland, population 124,000, the worst performing housing market in the area. ProTeck numbers say that Midland’s real estate market is showing many concerning signs, including:
- Active homes on the market rose from 399 to 885.
- Inventory went from 3.4 months supply, to 7.65, a balanced market.
- Sold days on market (58 to 70) and active days on market (56 to 96) have both increased dramatically.
- Foreclosures as a percent of sales, have increased by more than 40 percent year-over-year.
Some of those numbers are concerning in the speed at which they changed. While a balanced inventory is not in and of itself concerning, the supply more than doubled.
But even though the foreclosures number has edged upward, foreclosures are still less than 5 percent of sales in Midland.
The researchers include a ranking of market strength. Both Midland and Houston went from a “strong” rating to “soft” in the January 2016 report.
But in Houston, home to more than 2 million people and a more diversified economic base, the impact has not been as dramatic:
- Sales and market days have stayed relatively consistent.
- There has been a 47 percent increase in active homes on the market from a year ago.
- Active days on market and inventories have both increased, 46 percent and 24 percent, respectively, since this time last year.
These are a few inklings that the Houston market is indeed softening.
Expected job losses in Texas
In Texas, the rig count dropped by more than 62 percent in 2015. Experts opine that in total, oil industry job losses in Texas would climb above 60,000 by the end of 2015. And while it’s true that those job losses can ripple through all the industries that touch those businesses, as well as in commercial real estate, lower energy prices have a significant economic impact in other ways.
So far, the price of oil has whipsawed around, while the price of the average has been on a steady upward climb in Houston. ProTeck research shows no corresponding drop in average home values as the price of oil ran up and then fell down.
And, for the time being, this still holds true.