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What Falling Oil Prices Mean for Houston’s Housing Market

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Oil rig

Realtors may be worried about how falling oil prices will affect their business, which depends on the strength of the local economy.

In the past 6 months, crude oil prices have dropped from more than $100 a barrel to below $70 a barrel.  While consumers are rejoicing at the pump, Houston’s oil and gas industry are planning to cut costs.

So how will falling oil prices affect Houston’s housing market?  It’s hard to answer without knowing how low prices will go and for how long, according to Jim Gaines, a research economist with the Texas A&M University Real Estate Center.

“In the short run, we won’t see a whole lot of direct impact on housing,” Gaines said.  “But it’s one of those clouds on the horizon.  We’re not sure how hard it’s going to hit or how fast it’s going to get here.”

Loose Association:  The energy industry – feel the storm coming- is cutting back on programs and new hires, and laying off some employees.

These cost cutting measures could stem the flow of new residents to Houston, hurting Realtors’ relocation business.  Job cuts will curb families’ incomes and plans to purchase homes.  These impacts, however, will take time to trickle down to the housing market because the economic cycles of oil and housing aren’t exactly aligned, Gaines said.

The housing market is “very loosely associated” to the energy industry, Gaines said.  For example, Houston’s best housing year before the recession – $15.8 billion in home sales in 2006 – also saw an average West Texas Intermediate crude oil price of $66 a barrel.

However, not all economists are so optimistic about Houston’s housing market in the face of tumbling oil prices.

Ted Jones, Stewart Title’s chief economist and former Houston Association of Realtors chairman, forecasts a 10% to 12% decline in home sales over the next 12 months.  However, Jones also predicts a 6% increase in home prices, which could buoy Realtors’ commissions.

On the bright side, oil prices could stabilize Houston’s home buying frenzy, which could alleviate fears of a possible housing bubble, Gaines said.

“We’re anticipating, absent a major drop in oil prices, to have a relatively strong housing market in Houston next year,” Gaines said.  “We’ve been through the boom, now we’re in the slow, steady go-forward.”

A Realtor’s Perspective:  Amy Bernstein has experienced several economic cycles in the energy sector during her more than 25 years in the Real Estate industry.  The Houston Realtor and founder of Bernstein Realty said the falling oil prices haven’t affected her business so far.

“It certainly gives us pause, but we haven’t seen any slow down,” Bernstein said.

Houston’s diverse economy will keep relocation activity high, in spite of possible retractions in energy hires, Bernstein said.  Bernstein’s company is still seeing plenty of relocation activity from the health care, technology, retail and financial sectors, she said.

Future housing reports from the Houston Association of Realtors will likely show a dip in home sales.

This shouldn’t worry Realtors, however, Bernstein said.  That’s because historically, December is a slower month of the year for home sales.  There are also other reasons that could explain a possible housing slowdown, such as increased home inventory as builders begin to deliver more homes to meet latent demand.

“I may be overly optimistic, and the supply of inventory is so low that I don’t think (falling oil prices are) going to cause any drastic impact on the market,” Bernstein said.  “In fact, there may be more availability for consumers and not the type of bidding war frenzy that we’ve seen over the last couple of years.”

Information courtesy of Paul Takahashi with Houston Business Journal.

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