Oil slump weighing on housing markets
There's a dark side to those delightfully low gas prices: Housing markets are slumping in communities that were recently flush from the United States 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 oil companies, government energy analysts and Wall Street traders do not expect to happen soon.
The US. 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 labourers 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.
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 per cent through October this year from a year earlier, according to the most recent information from housing data firm RealtyTrac. Sales declined 8 per cent over the same period in nearby Midland.