$1.78 gas and the Oklahoma City Rental Market

[Rhett Tullis]

Many are very excited by the historically low gas prices here in okc.  I have not seen these prices in many many years.  While it is great for our pocketbook right now it will most likely be very painful in the coming months and potentially years.  I want to share a few thoughts I have and then link to a few recent articles so you understand what we may face here.  

My thoughts -

-our state seems to have a good reserves so we can and should ride this out for at least the remainder of the year if need be but it may make things tight.

-if prices do not rebound we will need a plan beyond that and it will not be pretty

-this can and will hit the rental market in a variety of ways and here are a few potential issues i see.

1. higher end rentals could see prices drop or vacancies increase as this type of downturn could hit middle to upper income families that have not budgeted or who see their jobs or incomes decrease as companies tighten their belts and cut salaries or even lay off more folks.

2. low income rentals would see more evictions and more late rent payments and potentially small decreases in price - while many of the low income families in town do not work for the oil and gas industry they do often work in service industries that are frequented by oil and gas folks or depend on programs that are subsidized by oil and gas money in our state budget. 

3. property prices and values - prices are being driven up on investment properties mostly by out of state investors as there are very few areas where you can get a "decent" property for under 100k and we are still one of them.  as items 1 and 2 above play out some out of state investors wont be able to turn a profit any longer as their margins are already just about too tight.  (also with the ongoing virus issues in the economy many folks are considering where and what is the best thing to do with their money right now) I think while property prices may stay high they will most likely plateau and could potentially drop a bit.

some recent articles and research that i find interesting.

-Russia and Saudi Arabia are in a fight over oil production and Russia is hoping to stick it to the US.  --

https://www.latimes.com/business/story/2020-03-08/oil-price-war

-Oklahoma shale producers break even at $21 to $48 per barrel (i would think its closer to $40 in Oklahoma) -

https://oilprice.com/Energy/Energy-General/Why-The-Oklahoma-Shale-Boom-Isnt-Taking-Off.html

-Oklahomas state budget is made counting on oil selling for $54 per barrel it is currently at $31 per barrel and dropping - 

https://kfor.com/news/local/dark-clouds-could-be-on-states-horizon-as-oil-prices-drop-to-30-year-low/

-While oklahoma's economy is very diverse it will be hit if prices do not rebound in the near future - 

https://oklahoman.com/article/5627150/state-chamber-provides-new-analysis-on-oil-gas-industrys-impact-on-oklahomas-economy-and-tax-revenues

-Oil and Gas would fall under mining and make up 22% of the GDP for oklahoma see page 11 - 

https://www.ok.gov/oesc/documents/lmiEconIndPub.pdf

The Good The Bad and The Ugly -

Good - oil and gas prices may come up if Russia gives in on this play.  We may also find that the companies here in Oklahoma are more resilient than we realize.

Bad - if oil prices do not come up there will be a budget shortfall or a major budget cut for the state of oklahoma in the near future.

Ugly - if prices do not go up soon or at least before the surplus of funds is used up things could get pretty ugly here and I have no idea what that could look like.  

Final Thoughts - I am not trying to scare folks out of oklahoma I just want them to know the full picture.  I personally invest in real estate here and own and manage many properties.  I think our economy will always bounce back and recover even in this type of situation as we have been through worse in the past.  I do think the extra "wrench" being thrown in all of this is the current virus outbreak and how it can/may effect all of the above. 
I am happy to be wrong on any and all of the above but these are some things I have been thinking about this week since this news broke.

[Cassi Justiz]

I've seen a weird mix. I think a lot of the activity is going to be driven by the specific jobs of the tenants and buyers. Some of my buy and hold investors are still actively looking and offering on property. But the ones that are buying are VERY specific types of Investors. They are locking in crazy low rates with 30 year conventional financing and looking to hit very specific metrics on their returns. As long as the houses are conservatively hitting those metrics, most of them are not slowing down. However, they are buying close to rent ready or turn-key with tenants in place. I don't have anyone right now tying up cash on big projects or trying to buy utilizing commercial financing. 

I've had 1 buyer decide to hold off right now because he is about 50/50 stocks and real estate. He's dumping his money back into the stock market right now because it's at a better "discount" than the real estate market. 

I have both residential and investment owners that are still on track to list properties in the next few weeks. I think everyone is a little nervous, but as of right now, none of them have decided to hold off or postpone for now. They are all in really competitive price points, so I don't expect we'll have any issues. 

As far as leasing, I think everyone is holding their breath here. As of right now, I haven't had any of my tenants say they are not going to be able to pay. The single income households that I have are not service based employees, so I think that makes a huge difference. One of the owners that I do leasing for had two properties available in Edmond. We signed one lease on Monday with an April 1st move in date and the second application was approved today also with an April 1 move in. The second property I listed for lease at the middle of last week. We received 5 applications, a several of those applications were sight unseen. None of the approved applicants were in industries directly impacted by the shut downs, so hopefully they all move forward as planned.  

I'm with @Rhett Tullis and @Will Fraser, I think this is going to take a while before we see all of the different ripple effects. The landlords that don't have large reserves and the ones that are over leveraged are going to be in a tough spot really quickly.
I also think a lot of the "get rich quick" airbnb hosts are going to get wiped out if this lasts for more than a few months. I know of several "superhosts" that lease properties for airbnb instead of actually purchasing them. They're about to have a really bad time. The savvy airbnb owners were already shifting to target the contract medical professionals, insurance claim people and other "longer term" short term renters.  The pure "vacation based" airbnbs are probably going to be some of the first to feel the impact.