Texas Housing Market Bigger Than Oil Prices

Oil prices falling to around $50 per barrel is crippling the energy industry. Seeing as Texas is so heavily invested in the oil and gas game, numbers that low will no doubt have a negative effect on the state’s economy. These effects are already evident in the cutbacks being made. Rigs are getting shut down all over the state and layoffs are being felt throughout the industry. Lost jobs and the fact that a big part of the Texas economy is faltering have many people concerned that the state’s housing market is headed for serious trouble. Dr. James P. Givens suggests that this may not necessarily be the case.

Dr. Givens tackles the 2015 Texas housing market and how it relates to the price of oil in an article for the Texas A&M University Real Estate Center. In the article, he analyzes the relationship between oil prices and the Texas housing market in past years. Based on his analysis, Dr. Givens determines that, despite the low oil prices, the state’s 2015 housing market should be fine.

He acknowledges that low oil and energy prices negatively affect an important part of the Texas economy, but observes that the low prices also positively affect the U.S. economy. Dr. Givens explains, “lower gasoline prices, lower fuel oil costs, lower transportation costs to move goods to market and lower energy costs to run industrial facilities create greater economic activity, better profit margins, higher GDP and, generally, more employment.” And while low prices hurt the face of Texas’ economy, the state still benefits from the positive impact the prices have on the U.S. economy as a whole.

Dr. Givens also notes that, while oil and gas may be the face of the Texas economy, the state has developed a very diverse economy that is much better equipped to deal with low oil prices than during the energy bust of the 1980s. Health care, technology, trade and professional services are just a few examples he provides in support of this argument.

Citing the improved U.S. economy and job growth in Texas’ non-energy sectors, Dr. Givens predicts a slowdown in the state’s economic growth rate instead of a complete decline. He contends that job growth will be lower than in 2014, but should still result in job gains.

Positive job growth is reassuring for those concerned about the Texas housing market, but Dr. Givens gives a more intriguing reason to be optimistic about the market despite low oil prices. He discusses how Texas home sales and single-family permit data indicate that there is an identifiable “optimum range” of oil prices in which the Texas housing market thrives. Extremely high or low oil prices cause a significant drop off. The data suggests that demand (sales) and supply (permits) usually are at their highest when oil prices are between $50 and $80 per barrel. So while $50 per barrel is terrible for the oil and gas industry and those involved in it, it actually can still be favorable for the housing market.

With an economy that can survive, and continue to produce positive job gains, in spite of a struggling energy sector, Texas should feel just fine about its housing market. Throw in the fact that historically, the market has flourished when oil prices are barely above $50 per barrel, and maybe there’s even reason to be confident.

Looking to buy or sell a home, or just have questions about the market? Always feel free to contact me at cynthia@cynthiamullins.com or 713.829.3052.

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