Midland/Odessa housing market hammered along with oil, gas economy

Overall, Texas housing market still favors sellers, especially in major metro economies

Housing markets are slumping in communities that were recently flush from the US shale oil fracking boom, especially the the West Texas cities of Midland and Odessa.

Home sales have also slowed in El Paso, and, more recently, in Houston, as well as North Dakota, epicenter of the Bakken shale formation.

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. Workers piled into newly built hotels, sending room rates soaring, and drop up housing markets as they settled in for what appeared to be a sustained economic boom.

“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, told the Associated Press.

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.

Odessa and Midland bore the brunt of the Texas real estate contraction, with home sales falling 10.6 per cent and 8 per cent respectively through Oct. 2015 from a year earlier, according to the most recent information from housing data firm RealtyTrac.

Despite the drop from 2014 boom levels, both cities have a seller-friendly four-month supply of homes on the market; economists consider a six-month supply of homes to be a balanced market.

Most Texas metro areas have fared somewhat better, especially where regional economies are less dependent on the oil and gas industry.

“The Texas real estate market has been firing on all cylinders in 2015. People are relocating to Texas from far and wide, homes in all price classes are in high demand, and the number of available properties is slowly rising,” said Scott Kesner, chairman of the Texas Association of REALTORS® in a press release.

Texas was the number two state for gains in out-of-state residents, with more than 538,000 Americans relocating to the Lone Star State, according to the 2015 Texas Relocation Report.

Additionally, international homebuyers contributed more than $8.32 billion to the state economy in a 12-month period, according to the 2015 Texas International Homebuyers Report.

“Texas’s diversified economy and our state’s enduring real estate demand shows that Texas remains to be a great place to live, work, and do business,” said Kesner.

Average and median sales prices have risen dramatically since 2011 and continue to climb, says research economist Luis Torres of the Real Estate Center at Texas A&M University.

“The constrained supply in conjunction with strong demand accelerated price gains. Austin and Houston have been the housing-price-appreciation leaders followed by Dallas and San Antonio,” said Torres.

“Considering recent trends in the energy sector and the economic slowdown, Houston may record some softening in price growth. Employment growth and a strong services sector caused Dallas to register strong price appreciation.”

The Real Estate Center says that since 2011, the median new home price has been 48 per cent higher than for an existing home, and the average sales price has been 37 per cent higher, primarily because of increases in home size for newer homes and markedly increased construction and land costs.

The price per square foot for a new home is 20 per cent more than for an existing home.

Even with rapid price appreciation, purchasing a Texas home continues to be relatively affordable compared with the United States, but the gap has been closing.