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How Oil Prices Affect the Real Estate Market in SoCal

Far from the oil fields of Texas or North Dakota, several companies in Southern California (for example ... Big job losses are never a great thing. Real estate markets in Texas, Oklahoma, and Louisiana will all likely feel the effect of the decline ...

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Oil prices continue to fall – months (a year, anyone?) after most observers thought they had already reached a bottomMany consumers are benefiting, and the energy expenses of businesses are decliningWhat's not to like? Surprisingly, a lotIn many regions of the country, and particularly across business sectors that thrive on the capital expenditures that the oil and gas business can provide, Big Oil's decline has had a bigger effect on the economy than perhaps many initially foresaw The Obvious Effects Oil service giants like Schlumberger, Halliburton and Baker Hughes have, collectively, announced 51,000 layoffs since the oil crash began, says, Local Records OfficeIn the U.K., BP is cutting 1 in 5 job North Sea jobsTogether with numerous independent oil and gas producers, estimates are that worldwide job losses may now have reached 200,000 peopleAnd, of course, oil exploration company profits will be downIn October, analysts at Oppenheimer expected only 2 of the 15 explorations and production companies it covers to post positive earnings per share for 2016Oil refineries are reaping the benefits of low prices and relatively stable demand, with strong recent profit dataRefineries are highly mechanized facilities, though, and there doesn't seem to be much talk of huge employment gains being driven by the refineries' good fortune And Some Less Obvious… Some less considered effects of the price decline, however, are the number of related service companies that have felt the pinchFar from the oil fields of Texas or North Dakota, several companies in Southern California (for example) have felt the pinch in a serious wayJacobs Engineering, Tetra Tech, Parsons, and Aecom have all been affected Oil and Real Estate Reports Travis Hoium, a contributor to The Motley Fool, noted that "[A] decline in oil prices doesn't just impact energy companiesThere are companies that supply fracking material, housing for workers, insurance, and other goods consumed by energy companies… Energy is one of the largest consumers of commodities like steel and aluminum, which are used to produce everything from drilling rigs to pipelinesCompanies like U.SSteel ("X", on the NYSE) have seen demand drop like a rock since oil prices started to decline." In addition, the benefits of lower gasoline prices seem to be more limited than originally expected"While great for gasoline consumers, the reduction in pricing seems to be limited to gasoline for our autos, and hasn't been reflected in other transportation sensitive sectors like grocery items, which have catapulted in price, said Gary London with the London Group Realty Advisors Declining oil prices and real estate Big job losses are never a great thingReal estate markets in Texas, Oklahoma, and Louisiana will all likely feel the effect of the decline in oil pricesSome observers claim that housing price declines in those markets tend to lag job losses by 6-12 months; but the sector's job losses began a while back, so the real estate downturn there has already started, and is unlikely to turn anytime soonThe significant drop in capital expenditures from the major exploration companies will have an adverse effect on many regional economies with construction and engineering firms that counted those companies as major customersBut few places are as dependent on the oil and gas market as is Houston; of the 25 Fortune 500 companies based in Houston, only three are not energy-related Benefits It's conceivable that apartment complexes in the Houston area might have benefitted from this downturn there, with reluctant homebuyers instead turning to high-end apartmentsThe market seems to suffer from too much supply, though, and some have fretted about Houston's recent abundance of luxury, upscale apartment complexes"I'm very concerned about the overbuilding in apartments," said Patrick Jankowski, senior vice president of research at the Greater Houston PartnershipIn some regions, however, some analysts argue that home prices and energy costs move in the opposite directionThese observers believe that, in the Northeast and Midwest especially, home prices tend to rise after oil prices fall And despite the troubles in the oil and gas industry, the nation as a whole finished 2015 with strong employment growth figuresThe year ended particularly strong, with December figures showing that employers hired an additional 292,000 people, and upward revisions for October and NovemberEmployment grew most vigorously in professional and business services, which added 73,000 workers, while the construction industry added an unexpectedly strong 45,000 jobs last monthLooking ahead, the biggest question nationwide is whether overall growth will remain strong enough to keep employment growth healthy, or whether turmoil in China and elsewhere around the globe will weigh down the U.SeconomyFor now, though, Texas certainly seems less attractive than it was 18 months agoSubscribe Thanks for your feedback.Thanks for your feedback! 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