Current Impact of Oil Crash on Houston’s Real Estate Market

Source: Devin Spell

Houston is the biggest city in Texas and the fourth most populous in the entire United States. It’s a massively important industrial city, with historical significance in space travel, petroleum exploration, and the energy industry. There is no question that Houston is intrinsically tied with the fossil fuel industry, as they are the oil capital of the United States.

According to Houstonproperties.com, Houston holds 29% of the nation’s jobs in the oil & gas industry. Nearly 45% of the employment in Houston is directly or indirectly tied to the energy sector. But in 2020, the energy sector has suffered greatly. This is something that has had a significant impact on the Houston economy. How will it impact their real estate market?

This year, oil prices have hit a 25-year low. In April of 2020, according to The Guardian, oil prices dipped below zero, at extreme cost to producers. A variance of factors, from the Saudi Arabia-Russia price war to the COVID pandemic, were at play in this situation. While prices have since risen, the impact of this drop was internationally felt, and in Houston, where oil is a massive part of their economy, the scale of the damage is yet to be fully known.

The total dollar volume of real estate sold was up 44% from September of 2019.

Right now though, the Houston housing market is still performing very well. According to Norada Real Estate Investments, the median listing price of a home in Houston was $310,000 in September. This is a growth of 11% year to year, compared with September of 2019. The total dollar volume of real estate sold was up 44% from September of 2019. Seeing these figures, one would think that Houston has largely avoided the repercussions of the crash of the oil industry. But history tells us this might not be the case.

According to the same report by Houstonproperties.com, it took 18 months for the impact of the 2008 financial crisis to result in a dip in Houston’s real estate prices. While the price of single-family homes in Houston did take a hit of 2.2% in the year after the crisis, the prices returned to pre-crisis levels within two years.

So while the duration of the impact of the financial crisis was short-lived, its true impact wasn’t immediately visible. The 2008 financial crisis is used in this comparison because it’s the most recent example of extreme financial turmoil that massively impacted the global economy. While it’s not a perfect comparison for the financial implications of COVID and the oil decline, there are interesting takeaway lessons from 2008 that can be applied today.

Following the 2008 crisis, while many homes lost some of their value, homes with good floorplans, not immediately located next to railways, highways, or thoroughfares managed to hold value. This is because real estate trends tend to be very local and neighborhood-based. High-quality homes will sell in any market.

But if the oil price drop results in a real estate crisis, lower-quality homes will sell at a discount or spend more time on the market. Another factor is that certain areas of Houston are more exposed to this crisis, as they would have a higher concentration of energy workers than other neighborhoods.

Overall, the outlook shouldn’t be dire. Houston is a city that has seen its economy and population growth in recent years. According to Houstonproperties.com, Houston’s massive growth in other sectors has decreased its reliance on the oil industry.

While the office real estate industry might suffer as companies continue to work from home, housing real estate isn’t likely to suffer a massive crash. Houston is still a city that has moderately cheap real estate, a large supply, and a solid economic foundation.

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