According to CNN Money, “Houston, you may have a housing problem.”
The fact that oil prices continue to decline is not unexpected for those who have lived through many “boom and bust” periods in the oil industry. Houston has always built its fortunes on the oil industry, and it looks like things are going to slow down there for awhile, including the housing industry.
CNN Money tells MHProNews that “The days of $100 oil are gone – maybe forever, and that means oil companies are cutting jobs — thousands of them.” The article continues by saying, “That’s scary for a Texas real estate industry that had been cruising along in recent years, thanks in part to the state’s booming energy business.”
Credit Suisse believes home construction could tumble 20% in Texas this year. “Employment growth is one of the most important drivers for housing, with job and income growth driving both local demand and increased population from relocations,” Credit Suisse analyst Michael Dahl wrote in a research report this week.
Last month, when oil was still trading near $60 a barrel, the Dallas Federal Reserve Bank warned that Texas employment could plunge by 125,000 jobs during the first half of 2015. Now that oil has dipped below $45, that estimate may be optimistic.
A number of large, Texas-based energy companies have recently announced job cuts, including 7,000 by Baker Hughes (BHI) and 9,000 by Schlumberger (SLB). However, not all of those job cuts will take place in Texas, although it’s easy to see how at least a chunk of them will. “Slow job growth is inevitable in Texas,” Dahl wrote.
JPMorgan went as far as to predict that Texas could fall into a recession. In the not too distant past, Credit Suisse was calling for brisk growth of up to 14% in Texas’ home construction industry. Now the bank predicts a 20% drop because of the “knock-off effects” caused by job losses and reduced confidence from the energy slide. That would represent a dramatic turnaround for Texas, which enjoyed a 7.5% jump in single-family permits in 2014, easily outpacing the lackluster growth of 0.5% nationally.
Lennar (LEN), a homebuilder with a big presence in Texas, says that so far it’s only seeing a little pullback at the higher end of the market. But it’s preparing for more trouble ahead. “We’re smart enough to know that if oil prices continue to be depressed, there’ll be some negative reaction in the market,” Lennar CEO Stuart Miller said during a conference call last week.
Some wonder, “Could this be the 1980s all over again?” There is a history of oil meltdowns seeping into the Lone Star state’s real estate market. When oil prices plummeted 50% in the 1980s, home prices dropped 14% from their peak, according to JPMorgan. Houston was particularly hard hit, with housing permits nose diving 75%.
Yet Houston is not as reliant on the oil and gas world as it once was. The city has attracted workers from many other industries, including medicine, finance, technology and education. “The number of jobs being created and people moving into Houston is so great compared with the ‘80s,” according to Scheri Fami, president of John Daugherty Realtors, which caters to the luxury market. So far, Fami said her firm isn’t seeing any signs of a slowdown.
For now, Credit Suisse is telling investors to steer clear of homebuilders with heavy exposure to oil-centric markets like Houston. Earlier this week, the bank slapped a sell rating on Pulte Homes (PHM), Meritage Homes (MTH) and Ryland Group (RYL). Shares of all three homebuilders are down. “Don’t feel an urgency to own any builders at this time,” Dahl wrote.
Despite the doom and gloom that some people predict, and although some parts of Texas are largely affected by the oil industry such as Houston and Midland/Odessa in west Texas, other cities are not so affected. Austin has become a high-tech center and is now the fastest growing city in the country.
Dallas, which has always flourished with banking and insurance companies, in recent years has become the headquarters for many corporations. Today, Toyota is moving their corporate headquarters from California to the Dallas area along with 4,500 employees. Realtors say that home sales in the north part of Dallas County and the adjoining Collin County, where the headquarters is being built, are booming. They say that many houses sell in only a week, and home prices in certain areas are going up.
San Antonio has always relied on the prosperity created by the many military bases located there and the businesses that support them. This city may suffer some job loss since it is only 100 miles north of the Eagle Ford Shale area, but with five military installations, there will always be some continuing sources of employment.
Fort Worth, however, may not fare so well because that city and the surrounding counties have immersed themselves in the “fracking” industry. As that declines, so will jobs in that area.
Just remember that Texas is a very large state with a diverse population and diverse business interests. So, it ain’t all bad in Texas. ##
(Graphic Credit: CNN Money)
Article Submitted by Sandra Lane to – Daily Business News- MHProNews.
