Texas employs some of the largest energy companies in the world. Houston alone is home to more oil companies than anywhere in the world. In 2014 the Governor’s office reported twenty companies headquartered in Houston having total revenues just under $900 billion.
As the price of oil decreases companies begin to lose revenue such that future projects are placed on hold, hiring halted, and raises significantly reduced combined with layoffs. Bloomberg BusinessWeek reported that Texas can expect a $1.8 billion reduction of monthly cash flow from production as a result of $60/barrel oil, and currently we are below $50. Yes cheaper gas allows a typical family to drive 30% further on a single tank, but those savings have just a small impact on the local economy.
The American Petroleum Institute in 2011 produced a report stating that the oil and natural gas industry is worth 7.3% of the Gross Domestic Product (GDP), but in an energy rich city like Houston this figured is far higher. Houston, like many in Texas survives off energy. If 10% or more of the economy is harmed due to lower oil prices then the local markets must eventually suffer.
The housing market in Houston is strongly influenced by the oil industry and with long term reductions in oil revenue we will see a negative impact on sales and housing starts. Currently homes valued around $250,000 and above are witnessing growth; the remaining homes are having serious struggles with a continued reduction in sales thanks to Dodd-Frank. With the average wage in the oil industry is upwards of $185,000 while the remaining industries average $64,000 (as reported by Bloomberg) clearly the oil industry feeds the upper end of the housing market that currently is thriving.
Schlumberger, Halliburton, and others have announced layoffs and other companies are soon to follow. If the price of oil stays near $50 a barrel home owners and future sellers should take notice. Rising property values will most likely come to a halt, and long term values may actually fall if oil stays this low.
For more information on the impact oil has to the housing market in Houston visit Builder Online and the article by Scott Davis. (Link below.) He has some very interesting data indicating where gas prices should be located to maximize housing starts.
Oil Prices and Housing Starts