Houston Real Estate Market and Oil

[Tim LaBorde]

Apparently, enough people are concerned about the price of oil that it has affected Houston’s ranking according to the Urban Land Institute. Realistically, as an investor, you always have to be cautious about what property markets are doing. However, the oil market is only one slice of Houston’s economy. Don’t forget that we still have one of the best medical centers in the world and companies are moving to Houston and Texas in general from all over the country, making our local unemployment rate one of the best in the nation. I started becoming concerned about oil last November. From what I’ve seen in the last year, our clients haven’t slowed down at all. They’re still making money with their flips and rentals. We’re still doing well with our rentals; our tenants are still working and making their monthly payments. 

The end of the world is not coming despite what a lot of talking heads in the media would have you believe. The Federal Reserve wants inflation. They want property prices as well as all other prices to go up. If we start seeing deflation, the Fed will step in to provide QE4 or whatever they’re going to call it next time. Over the long run, assets outpace the dollar. If you’re buying real estate at a discount as an investment, the price changes will not affect you the way it would a typical consumer that buys a house for his family at the top of the market and then watch as that value goes down and now they’re upside down with their mortgage. I’ve touched on this before in a previous post but your end goal is to get in and out of a flip project in 4-5 months. If you’re not comfortable with that time frame then you should steer clear of that risk. Also, consider that if you’re properly using asset allocation, you’re not going to drop your whole nest egg into one project. Real estate has a place in your portfolio but that shouldn’t be the only asset in your basket.

http://www.bizjournals.com/houston/news/2015/10/07...

[William Dampier]

"Three factors drive Houston's economy - the price of oil, the value of the dollar, and the health of the U.S. economy. Two of the three are currently struggling at the plate. 

Crude trades at least half of its June '14 peak. Exploration firms have slashed their budget 50 percent or more. The rig count has fallen nearly 60 percent. Drilling permits are down 40 percent. Layoff notices appear in the media almost daily. One week, analysts forecast crude will slip below $20 in the spring; the next week they predict crude will top $80 by the fall.

What's certain is that the industry is in transition, with more layoffs, bankruptcies, mergers, Ned acquisitions to come. Oil price, a catalyst for growth in recent years, are now a drag on Houston's economy". - Greater Houston Partnership, October 2015.

Houston may be more diversified today than it was 30 years ago, but don't kid yourself. Sure, Leisure and and Hospitality has added 21,900 jobs since December '14, but who do you think they are catering to? Business Services has added 8,800 jobs during the same stretch. Something tells me they are servicing a particular industry - O&E. 

I'm not predicting the end of the world, but I would caution against believing that we are out of the woods just yet.