There’s a dark side to those delightfully low gas prices: Housing markets are slumping in communities that were recently flush from the U.S. shale oil fracking boom.
Home sales are down sharply this year in North Dakota and the West Texas cities of Midland and Odessa. Home sales have also slowed in El Paso and, more recently, in Houston.
The drilling boom, driven by high oil prices and new discoveries, brought tens of thousands of workers to oil fields in several states to run drilling rigs and supply the equipment and services needed to produce crude. Then the price of oil tanked, plummeting by half in late 2014 and reaching levels this year not seen since the financial crisis. Oil companies abandoned drilling projects and began laying off workers.
“When your economic base is undergoing that kind of pressure, your local market is going to feel it,” said Jim Gaines, chief economist at the Real Estate Center at Texas A&M University.
Despite the softer sales, home prices have mostly held up in oil-reliant markets, at least so far.
Still, housing is expected to slow further in Texas and North Dakota next year unless the price of oil rebounds strongly, something that oil companies, government energy analysts, and Wall Street traders do not expect to happen soon.
Oil Boom Sent Housing Prices Soaring
The U.S. oil boom kicked off toward the end of the last decade as drillers learned to improve the extraction process known as fracking to unlock oil trapped in underground shale rock formations.
The Permian Basin in West Texas and the Bakken Formation in western North Dakota quickly became magnets for workers, including many laborers who had been struggling to find work in the home construction industry after the housing bubble bust.
Workers stuffed hotels, sending room rates soaring, as they looked for housing. Others piled into sprawling, hastily erected housing complexes called mancamps.
“It was not unusual to have a house on the market and, in less than a week, have multiple offers. It was a crazy market,” said Scott Kesner, chairman of the Texas Association of Realtors.
That frenzy began to dissipate early in 2015 as the slump in crude dragged on, and it has since deepened. Crude is trading near $38 a barrel, a level not seen since the depths of the recession in 2009. The energy and mining sector has shed 122,300 jobs this year, according to Labor Department data.
Home Sales Dropping
In Texas, no stranger to oil-related housing booms and busts, the impact so far has been most pronounced in Odessa and Midland, cities at the doorstep of the Permian, a key shale oil region that extends from West Texas into New Mexico.
Home sales in Odessa fell 10.6 percent through October this year from a year earlier, according to the most recent information from housing data firm RealtyTrac. Sales declined 8 percent over the same period in nearby Midland.
“They are going to bear the brunt,” said Gaines. “They’re right there at the point of the spear in the energy sector.”
Still, the two cities continue to have a seller-friendly four-month supply of homes for sale. That’s more than the two months they had before the oil slump, but still representative of a tight market for homes. A six-month supply of homes is what economists consider a balanced market.
In El Paso, home sales have also declined. They’re down 8.8 percent in the January–September period from a year earlier.
In Houston, sales began to decline in October, and the median home price has fallen for two months in a row following 41 consecutive months of price increases.
Real estate agents in Houston, where many oil companies have corporate offices, say the loss of oil jobs has resulted in less competition for homes—fewer are fetching offers from multiple bidders.
On the buyers’ side, the oil industry’s woes are giving some the confidence to put in lower offers, said Tim Surratt, an agent with Greenwood King Properties in Houston.
Still, Houston’s economy isn’t nearly as reliant on oil as it was in the 1980s, when the city grappled with a slump in oil prices and a savings and loan crisis.
Sales have also slumped in North Dakota, sliding 6.3 percent for the January–October period.
In Minot, North Dakota, which is located within the Bakken Formation, the housing market has cooled somewhat after being red hot for years, said Dorothy Martwick, broker-owner of Century 21 Action Realtors. Now, she said, the scales have tipped more in favor of buyers.
“In 2011, you could ask whatever your wanted for your house and you might get someone to pay it,” she said. “Now, you have to realistically put it on the market for what it’s worth.”
While some markets in Texas are slowing, the statewide figures still show overall home sales accelerating and prices rising. The big Texas markets of Dallas–Fort Worth and Austin have hardly been affected at all, according to RealtyTrac figures, partly because those markets have diverse economies that are less reliant on energy.
That could change if oil prices continue to fall, say, into the $20-a-barrel range, Gaines said.
Martwick, the agent in Minot, isn’t too rattled by that prospect.
“Life will go on,” she said. “We were here before the oil. We’ll be here after.”