Oil the ‘Big Unknown’ for 2015 Texas Housing Market

COLLEGE STATION (Real Estate Center) – The Texas housing market is poised to start 2015 off strong, says a housing market expert with the Real Estate Center at Texas A&M University. However, one key variable will impact the market in the second half of the year: oil.

“Oil prices are the number one issue facing the Texas housing market next year,” said Center Research Economist Dr. Jim Gaines on this week’s Real Estate Red Zone podcast. “It’s the big unknown. In the last six months the price for West Texas intermediate crude has gone down almost 50 percent, from about $107 per barrel to around $53 per barrel. The question remains: what does that mean for Texas?”

Gaines said he expects low oil prices will begin taking their toll on the state economy and housing during the second quarter.

“The first half of the year I doubt we’ll see layoffs or much job loss,” he said. “What we do expect to see in the second half are cutbacks in drilling activity and capital budgets on upstream operations (exploration and drilling) and a decline in the rate of new jobs being created.”

Gaines said the cutback in drilling on the exploration and production side will be partially offset by capital construction in downstream operations (refining and processing), particularly in petrochemicals and other industries that benefit from low energy prices, as well as growth in the overall national economy.

“So one end of the spectrum gets hurt by low prices, and the other end gets helped,” he said. “Nobody knows how that’s going to balance out at this point. It’s unclear to almost every economist that we talk to or follow. First of all, we don’t know how low oil prices are going to go. There’s a very real possibility that prices will continue to fall for the next few months. We don’t know how far. We also don’t know how long they’ll stay down. That’ll make a big difference.

“In general, the national economy is helped by lower oil and gasoline prices. And Texas gets buoyed up by a better national economy. So there are a lot of things going on here that we’re going to have to keep our eye on.”

On the whole, though, Gaines said he expects the state’s housing market will be fine in 2015, but subject to a new category of unknowns.

“I don’t think it’ll collapse or anything,” he said, “but it might start to trail off during the second half of the year. If we do as well next year as we did this year, it will be a great year. But even if it declines, hopefully it won’t be more than a small percentage.”

To review November 2014 Texas MLS housing market data, visit the Center’s website.