Investing in Houston while oil prices fall?

Question

As someone who has contemplated investing in Texas for quite some time, I have finally decided to take the plunge and make a SFH purchase (about to sign a contract).  And, of course, my decision coincides with the current fall in oil prices.  To those who have weathered these storms before or who have more intimate knowledge of the market than I, would you recommend purchasing in Houston at this time or holding off?  Going for long term buy and hold.  Thanks in advance for your guidance.

Eric Tait · Answer

I would say focus on work force housing ARV's 80-150K, there is not a ton of appreciation in this end of the market, but you can buy below market value and value add.  These properties will cash flow well in Houston and this is where the home builders in Houston are NOT building houses.  There is a huge deficit in starter home housing stock in Houston and at rents of $1000-1300 a month you will cash flow very well.

Lyall Storandt · Answer

@Emily Powell As long as you're buying right, you'll be fine. And, to be quite honest, even if you're paying full retail for a turn-key you'll probably still be fine. (Happy to give you my honest opinion on the deal if you'd like to share details via PM.)

There may be some heartburn in the short-term, but what's bad for the Energy industry (cheap oil) is good for the rest of the economy (cheap gas). As a few folks have mentioned previously, our economy is pretty diverse and likely much better suited to weather the ups-and-downs of the oil market these days.

Two things will always be true: I. With oil being a finite resource, its price will always fluctuate. II. People will always need places to live.

Karyn T. · Answer

Make sure you have exit strategies and are getting a GOOD deal.

My parents lost our family home (the first they ever purchased), in a good, middle-class Houston neighborhood to foreclosure in the 80s.  My dad was a computer engineer working for Texas Instruments.  Got laid off.  Got another job with Exxon. Got laid off.  Got another job with Gulf (I think...they all ran together after a while).  Towards the end, he was willing to work at McDonald's (who wouldn't hire him since he was "overqualified").  Sad time.  Cost my parents their house, and their marriage....

Fred Heller · Answer

My two cents: you're probably not going to see big price declines, if that's what you're hoping for. But prices won't accelerate at the levels we've seen in the last few years. And I also think the market will become a little more buyer-friendly this year. These past couple of years were pretty tough on the buyers. They were competing against multiple offers, houses were being sold over asking price, and they were being sold fast.

A couple of weeks ago HAR projected that house sales will decline 11% - 12% in 2015. But that's coming off a record year. The market should still be hot; just not as hot.

There is some anxiety around here because people remember what happened when oil collapsed in the 80's. But Houston isn't the one-industry town it was back then.

Joe Moore · Answer

Houston is really not an appreciative market.  It is more of a cash flow market.  It is a relativestable market overall.

Rob Lucey · Answer

In the 80s, Houston's economy was completely tied to the ups and downs of the oil market. It's now somewhat more diversified with the largest medical center in the country, several universities, a huge variety of retail outlets and restaurants, the dwindling space center, tons of construction, etc.

Still, folks are getting nervous as oil prices plummet and companies begin the inevitable rounds of layoffs (yes, it's already happening). Nobody would have predicted sub-$2/gal gasoline a year ago. Likewise, we can't predict which way it will go from here.

That said, housing prices haven't begun to plunge yet. But some realtors are starting to see a hesitation. At the very least, buyers are getting a bit more cautious. Some areas, such as the Heights, downtown or the theater district near the medical center are less tied to the energy industry.

Places like the energy corridor in west Houston might feel the oil bite hardest. But that's also been one of the strongest growth areas, and will continue to be if prices rebound. So it's really about how much patience you have to wait through a price cycle.

David C. · Answer

Karyn T. , sorry to hear about your dad.  I remember the days when I was living in Calgary, Alberta Canada.  When oil price was low, you see engineers with master degree working in Pizza joints, very sad.

Karyn T. · Answer

Thanks David.  It was a long, hard climb back up for everyone involved.  I'd hate to see it happen there again.  Houston really is a great city in many ways....and all of my old best friends still live there.  I wouldn't be surprised to find myself investing there in the future.  We'll see how it goes...

Michael Ran · Answer

it will not be the huge drop in prices people say but it will go down.(in my opinion)

The question is how long till it drops and how long will oil stay low.

My investors say late August is the time to start looking for newbies dropping out of the real estate game. We should also see OPEC, Iran, and Russia yield to Suadi.

Michael Ran · Answer

I warn all out of staters. If you are not in the area or have someone in Houston be careful! There are many areas that are not great buys. Also notice Real Estate agents saying things will be ok, however as someone who's investors are all Oil Executives. We have stopped all SF investing! Now that does not mean I have stopped looking for deals but they have to be really good cashflow deals.

Personally, I have found wholesalers are the only place to find deals. MLS sellers and realtors are still trying to squeeze the out of staters before they see the market is stopped. (Just my opinion!)

There are a lot of SF development projects running right now. With this slow down in homes purchases that no one seems to be noticing and  new homes planned, things are going to move to a buyers market fast. Also people fail to notice layoffs are not the problem, the hiring freezes are!

With oil so low, smaller companies are going to feel the pain. There is still far more businesses that support the oil industry (1 oil company to 5 support) that have also started hiring freezes. Hiring freezes means less jobs which in turn means less people will move to Houston for new jobs. Keep word here is "Less"! The development and planning office approved building permits based on growth. With less growth then thought, there will be a surplus of SF houses being built. Draw our own conclusion!

Investing in Houston while oil prices fall?

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