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Comerica: Low Oil Prices Create an Economic ‘Sea Change’ and 11 Percent Drop in Housing Starts to Houston

by Realty News ReportDecember 17, 2014
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Dr. Robert Dye
Dr. Robert Dye

HOUSTON – Significantly lower oil prices represent “a sea change” in the Houston economy and will bring about a weaker commercial real estate market and an 11 percent decline in housing starts in 2015, according to economic commentary by Comerica Bank.

After creating about 120,000 jobs in 2014, Comerica projects that Houston will add about 82,000 new jobs in 2015.

“However, significantly lower crude oil prices, now dropping through $60/barrel, represent a sea change for Houston. We expect oil drilling and exploration activity to cool worldwide. Also, service work on existing wells will ease, reflecting the decreasing profitability of crude oil production. Houston, as both a global and regional energy center will be caught in the changing currents. Already, we have seen the Texas drilling rig count dip for three consecutive weeks into early December. We expect to see this important leading indicator cool significantly over 2015, reflecting our view that oil prices will remain weak through 2015,” Comerica said in its Economic Insights reported issued Wednesday.

“We expect to see most of the Houston economy impacted by significantly lower oil prices. However, refiners, petrochemicals and other industries that use petroleum as an input will enjoy expanded profit margins and provide some counterbalance to reduced oil field activity,” the Comerica report said.

The weakness is expected to continue into 2016. The decline in housing starts will impact both single-family and multifamily markets in Houston, Comerica said.

“Houston’s previously robust rate of job growth will be a casualty of lower oil prices. We expect job growth in the Houston metro area to diminish in 2015 and again in 2016. Reduced job creation will attract fewer migrants into the Houston area in the years ahead. With consolidation in the energy sector will come less demand for office space, weighing on commercial real estate markets. Reduced job and income growth will likewise weigh on residential property markets,” Comerica said.

Dr. Robert A. Dye is Senior Vice President and Chief Economist at Comerica Bank, based in Dallas.

In a recent report, the Houston Association of Realtors and economist Dr. Ted C. Jones of Stewart Title forecasted a 10-12 percent drop in home sales in 2015 in Houston, which is having record-high sales in 2014.

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