How Will Low Oil Prices Affect Real Estate in Dallas-Fort Worth and Houston in 2015?

Houston new home starts in 2015Opinions differ on how the rapid decline in oil prices will affect the real estate markets of the states’s two behemoth metroplexes in 2015. The question seems to be how low will oil prices go, and how long will they stay at those levels.

Although Houston’s economy is much more diverse now than during the 1980’s oil bust, multifamily consulting and data firm MPF Research estimates that nearly half of all jobs in Houston are in some way tied to the energy industry. As the number of rigs decline with the price of oil, oil company budgets are getting slashed, and job growth in Houston for 2015 is expected to be about half of the 125,000 jobs it created last year.

As a result, industry insiders expect multifamily development to slow. “We’ve been building at a level that suggests 100,000 jobs a year will continue,” says MFP’s Greg Willet. “For those units coming on next year, they will probably be slower to lease up and at a slower rent growth pace.” MFP Research thinks Houston apartment rent increases in 2015 will slow to 2.9% from the torrid 5.2% rent rate increases in 2014. More than 35,000 Houston area apartments are in construction, with 23,420 expected to be completed in 2015. That is nearly double the number of units completed in 2014.

“If you don’t have your financing right now, it’s going to be real tough”, said Ric Campo, chairman and CEO of the national apartment developer, Houston-based Camden Property Trust. “Everybody’s very nervous about oil prices,” says Campo. “It’s all over the board. You see real pessimists saying Texas and Houston will go into recession, and then there are the optimists.”

Houston has been the nation’s white-hot center of residential and commercial real estate development for the last few years. It has more than 100 commercial buildings in the planning stages, and leads the nation in single family home permits. It also dominated the field with 2,989,811 square feet of commercial office construction through the first nine months of 2014. Dallas-Fort Worth came in number two at 1,878,124′, ahead of Silicon Valley’s 1,187,180′.

Will the nervousness in Houston drive more real estate developers and investors to Dallas?

With the lack of inventory of homes for sale, the Dallas and Houston residential markets should both persevere in 2015. Dallas homes for sale inventory is at a 15-year low. While Metrostudy predicts Dallas – Fort Worth to build 28,000 homes in 2015 (trailing the 37,000 predicted for Houston) keep in mind that 49,573 new home permits were granted in DFW in 2005 – when the population was substantially less. As long as supply can’t keep up with demand, expect home price increases to continue, particularly in high-demand areas.

North Fort Worth, Frisco, McKinney, northwest Dallas and Lakewood continue to lead as new home destinations of choice in DFW. North Fort Worth has seen new home prices rise 23% since 2011. Frisco new home prices are up 43%. McKinney new homes are up 36%. And the neighborhoods south of 635 and west of 75 (Central Expressway) have seen new home prices move up 86%, with an average sticker price of $913,200!

There’s no doubt that Texas, which produces 30% of the energy in the US now will suffer from a prolonged oil price slump. But the fact is, folks continue to move to Texas and are expected to for years to come. And we don’t have enough housing currently to accommodate them. Real estate prices are simply based on supply and demand, just like the oil prices.

Speaking of, T Boone Pickens thinks they could rebound to $85 a barrel within twelve to eighteen months. If he’s right, these low oil prices aren’t the end of the road, just a little speed bump.