Job growth in Houston fell sharply after the price of oil went from over $100 per barrel to $30. There is a historically tight correlation between oil prices and housing demand in Houston, and the recent dual drop continued to affirm that correlation. Houston has recently gone from more than 100,000 new jobs a year to fewer than 20,000. This is still positive growth, but barely. And, recent revisions show the number of losses in upstream energy sector was greater than previously reported. Houston new home sales and starts are down by 10-11%, and we expect another decrease in 2016. Of course, it depends on what oil prices do from here. Prices are back up a bit, getting close to $40 per barrel now. West Texas shale becomes profitable again at $40-$45/barrel.
The first quarter was not as bad as feared, in terms of housing starts, but the $400,000+ tranche has suffered the most. Most builders have been negatively impacted, but not all; the range across our sampling of builders is from 20% up to 20% down (in volume for the past year). The builders who have recently opened developments aimed at entry-level buyers are the ones who are doing the best. The move-up and luxury segments are weak. Despite anemic sales in the higher-end, there is very little price discounting going on (apart from incentives for sales agents).
It is also important to keep in mind the positive impacts on downstream energy businesses. Petrochemical producers use oil as an input, and they thrive when oil is cheap. There are $50 billion worth of petrochemical plants under construction right now in east Houston. This will represent a lot of new jobs, and therefore new home demand.
Other housing markets in Texas are still holding up well. Dallas job growth remains extremely robust (at a clip of about 100,000 a year), and builders started 26,779 homes in 2015 (up 11.4% from 2014). Much worse off than Houston are less economically diversified areas like Williston, ND, Midland-Odessa, TX, Victoria, TX, Western Pennsylvania, and in places surrounding the Barnett Shale (by Fort Worth), and Eagleford, South of San Antonio. Housing demand has been hit hard in those more energy-dependent places, and will remain low as long as oil prices stay in the current range.
