Could Falling Oil Prices Impact Houston’s Luxury Housing Market?

The low gas prices of late have been seen as a gift to many Americans. With some being able to fill up their gas tanks for as little as $20, it’s hard to imagine that this could be a bad thing. For Texas, however, the plunging prices could put a damper on the state’s recent energy-driven boom.

Nancy Sarnoff, a writer for the Houston Chronicle, speculated that falling oil prices could detract from the luxury housing market in Houston. Sarnoff defined a luxury home in Houston as one that sold or was listed for at least $1 million.

In her article “Plunging Oil Could Chip Away at Million-Dollar Housing Market,” Sarnoff identified that while luxury home sales were up 13% in 2014 over the previous year, the new low oil prices show Houston could be at risk of going into a recession.

A Wall Street Journal article titled “Plunging Oil Prices Test Texas’ Economic Boom” also tracked the possible downturn in Texas’ economic standing. The article pointed out that the state has been a “national growth engine,” expanding twice the pace of the U.S. as a whole between 2009 and 2013. Now, however, some Texans are remembering the ugly energy downturn of the late 1980s.

Herb Kelleher, retired Southwest Airlines co-founder, argued in the Wall Street Journal’s article that this won’t be a replay of the 1980s. He refers the article authors to a more cautious banking sector, a state economy less dependent on energy, and a tax and regulatory environment favorable to business as examples that Texas will not replay that unfortunate time.

As for the housing market, perhaps things will not turn out quite so dour as feared. Jim Gaines, a Texas economist who hails from the Texas A&M Real Estate Center, pointed out to Sarnoff that skilled, high-paying jobs are less at risk as oil prices fall. While multi-million dollar homes might see a downturn in sales, these consumers may instead turn to purchasing a $1 million home, according to Gaines. This may cause a shift in buying patterns, Gaines said, but could still lead to a decent year.

Oil prices have fallen recently due to the Organization of the Petroleum Exporting Countries (OPEC) opting to not lower its production quota in November, a move that many counted on to restore balance to the market as explained by the Wall Street Journal. Saudi Arabia lowered the price of its benchmark oil in the U.S., a possible sign that it could be attempting to make U.S. shale-oil production unprofitable. You can read more about this issue in the Wall Street Journal article “Oil Prices Extend Declines.”