Houston is known as an oil boom city. The metro is home to oil industry powerhouses such as Conoco Phillips, Marathon Oil, and National Oilwell Varco. So what does it mean for the Bayou City’s housing market when there’s a slump in oil production and prices?
The oil slump will have an effect on the housing market, but it will predominately effect the apartment sector. If you’re an apartment developer, the current business environment isn’t exactly what you’re hoping for. As the Houston Business article, “Dozens of proposed apartments in Houston stalled amid oil downturn,” points out, up to an estimated 70 apartment projects have stalled due to a lack of financing. This has been directly linked to the drop in oil prices. This domino effect has hit apartment developers and owners, as 15,000 forecasted new units (as reported in the abovementioned article) will now be put on hold until oil prices—and the economy—rebounds.
However, the situation is decidedly different for new housing construction, including new townhomes, condos, and single-family homes. In the homes for sale sector, developers aren’t being hit by the economic storm in the same way apartment construction is. The article, “National firm predicts apartment construction slowdown in Houston,” points out that while multifamily developers need to be cautious, but development of new single-family homes will keep moving—even increasing at a significant pace in the next five years despite lower oil prices. The steady rise in new homes starts is illustrated in the graph below, as originally published in the Houston Business Journal.
As this Houston Chronicle article reports, new home sales are expected to trend upward in April 2015, signaling that demand is still strong and new inventory will be absorbed. March 2015 home sales were up by 3.8% compared to the same period last year, while condominium and townhome sales were up by 13.8%! For comparison, in March 2014, the price of oil per barrel (WTI) was at $100.80; in March 2015 it was $50.34. This demonstrates that home sales today are not as influenced by the price of oil in Houston.
What Fuels Home Buying
In the article, “Five reasons why Houston homebuilders will weather the oil slump,” the reporter outlines the major trends fueling the home buying sector. On the list is millennials. Millennials are not only one of the nation’s largest population groups, they are expected to be one of the nation’s largest home buying groups. Another reason homebuilding will continue, according to the article, is due to the fact that there is a correlation between declining oil prices and lower prices for materials and land.
As Houston’s oil industry struggles to regain momentum, the demand for city living hasn’t waned. Favorable interest rates and active lenders have helped to facilitate new home ownership. Houston has long led the nation in new housing construction, and the development will continue.
