Energy related real estate markets---Boom or bust?
Anyone who's gone to the pump lately has noticed that it costs a lot less to fill their tank these days. That's great news for your wallet, but not so good for the economies of the oil producting states,
How will the drop in oil prices affect reale estate values? Oil and natural gas has played a significant role in the economies of the energy producting markets in the U.S. and a key part of the nations economic recovery. The U.S. became the largest producer of oil in the word in 2014.
The top 5 oil producing states include Texas, Alaska, North Dakota and Oklahoma. Oil and gas production accounts for 10% of all jobs in the top oil producing states and that just includes jobs directly in the energy field. Workers in the oil and gas industry are very well paid. Nationally, the median pay in the industry is $56,587 compared to a national median wage of $32,096.
These booming economies have drawn real estate investors seeking strong appreciation potential, especially in markets such as Houston, TX. I had Houston and Oklahoma City on my own radar becasue of their low unemployment and strong economies but have always been concerned that they are too energy dependent. I was around in the 1980's and recall all too well the recession that Houston experienced when oil prices collapsed.
Are we on the verge of another 1980's style oil bust?
It's hard to predict what oil prices will do in the near future and how long these low prices will last, but the effects are already being seen. Break even for most drilling projects is between $50 to $70 per barrell. Today, the price of oil is under $50 per barrel. As a result, the number of rigs actively drilling has dropped 22% in just two months. This is the largest drop since 1987. Schlumberger has laid off 9000 employess and Baker Hughes has announced they will lay off 7000.
Houston is particularly vulnerable. 40% of the nations energy related jobs are based in Houston and about a quarter of the new jobs produced in Houston since 2010--105,000, are in the energy related sector.
I don't know about you, but for me that is too much is riding on the oil industry in these markets. I like to see economies made up on diverse economies and industries.
