MFH NEWS AND VIEWS: DIP IN GASOLINE PRICES RESULTS IN HOUSING MARKET SLUMP IN NORTH DAKOTA AND TEXAS
There is a dark side to those delightfully low prices at the gas pump: Housing markets are slumping in communities that recently were flush from the U.S. oil fracking boom.
Fracking is a process developed towards the end of the last decade to improve the unlocking of oil trapped in underground rock formations.The process reignited an oil boom primarily in western North Dakota and southwestern Texas. High paying jobs lured thousands to oil fields near smaller rural communities in North Dakota with limited housing opportunities. The initial lack of housing for workers in Texas oil fields was not as severe as North Dakota, as the drilling operations were closer to the larger population centers of Midland, Odessa, and Houston.
Home construction in communities near oil patches skyrocketed. The price of any pre-existing dwelling swelled to unprecedented levels. The limited rentals available, including apartments, houses, and motels, garnered rental fees double or triple the rate before the oil boom. The unemployment rate in North Dakota was near zero while the nation’s rate was in double digits.
Oil companies contracted with manufactured home companies to produce manufactured homes called “man-camps” to house hundreds of oil field workers.The homes provided were well made and efficient double or triple section units with bedrooms and private baths to accommodate 6 to 35 or more workers per each structure. Some were built with community kitchens and lounging areas. These homes were delivered and installed nearby the oil drilling work sites, allowing workers to begin earning income before relocating families to the area. (See footnote)
In late 2014 the price of oil tanked, plummeting by half, and continued to fall into 2015. Crude is trading near $30 a barrel, a level not seen since the depths of the recession in 2009. The energy and mining sector shed 122,300 jobs in 2015, according to Labor Department data. There is nothing on the horizon to indicate that oil field worker layoffs rates will improve going forward into 2016.
Midland and Odessa are the communities in Texas that are most impacted by the oil related housing bust, with Midland home sales falling 10.6% through October 2015 from a year earlier, with Odessa declining 8 percent for the same period, according to information from housing data firm RealtyTrac.
Despite the softer sales, home prices have mostly held up, at least so far.
“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.
The sales data for manufactured homes are not included in the home sales data for Texas. Manufactured home sales and shipments in Texas lead the nation in month to month sales increases. Midland and neighboring Odessa are two of the stronger manufactured housing markets in the state.
Sales also slumped in North Dakota, sliding 6.3%for the January-October period. Home sales and valuations will likely slide further as petroleum companies continue to suspend operations in the oil-dependent local economies of western North Dakota.
In Minot, North Dakota, located at the center of the oil boom, the 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 in favor of buyers.
Housing is expected to slow further in Texas and North Dakota unless the price of oil rebounds strongly, something oil companies, government energy analysts, and Wall Street traders do not expect to happen soon.
Footnote: The aforementioned manufactured home “man camps” that are no longer occupied by oil patch workers are now being repurposed for variety of group housing requirements. Recently a 36 room manufactured home has been transported from oil fields to a prison to serve as private accommodations to reward model inmates.