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The Impact of Oil, Gas on the US Housing Market

Courtesy of Rigzone interviews Michele Marano on the impact of Oil on Houston Housing

by  Valerie Jones, Rigzone Staff Friday, March 04, 2016

Just a few years ago, the industry was in an upcycle – oil prices were high, drillers had discovered new ways to extract oil and gas and jobs were plentiful in the oilfield. Workers flocked to oil-rich cities like Houston; Midland, Texas; and Williston, North Dakota. The housing markets in these areas saw a heavy increase in home sales. But these days, sales have slowed down quite a bit.

“We are not excelling anymore. We are maintaining,” Warren Ivey, managing broker and owner of Century 21 The Edge and regional vice president of the Texas Association of Realtors, told Rigzone. “While we’re not seeing a tremendous increase in prices on a monthly basis, we’re holding our own. The median price of a home last quarter (4Q 2015) was up by 0.3 percent.”

Ivey, who has worked in the Midland market for 10 years, said a balanced market should have 6-6.5 months of inventory. Currently, the Midland market has 3.5 months of inventory.

“A year ago, we had 2.4 months of inventory, so [sellers] were doing better then,” said Ivey. “Sellers are aware that we sold their properties within 17 days on the market last year. Now the average number of days on the market is 52. Our sellers aren’t panicking, but they’re asking what’s wrong?”

The significant decline in drilling activity in the Permian Basin plays a factor. The single family residential renting market in Midland has also been affected, noted Ivey.

“Prices have gone down and inventory has gone up,” he said.

Ivey believes this is due to many of the migratory workers – guys who were living in Midland and working on the drilling rigs.

“The people it took to operate those units were a migratory workforce. We saw a lot of them come in from places like El Paso, where the husband came and left the mother and children at home,” said Ivey. “When the overtime stopped and drilling activity slowed down, those workers probably went back home. They aren’t going to be re-leasing their homes.”

 

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Paying Less at the Pump

Courtesy of Rigzone – Rigzone interviews Michele Marano on lower gas prices and housing prices.

by Matthew V. Veazey DownstreamToday Staff

March 01, 2016

As this graph from the American Automobile Association (AAA) shows, the U.S. average price for a gallon of gasoline has fallen dramatically since the second half of 2014. As of February 8 of this year consumers were paying an average of $1.74 per gallon of gasoline, representing a 44-cent year-on-year decline, according to AAA. Barring any significant supply disruptions, AAA expects the low-price trend to continue for the near term.

A limited victory?

“Consumers are definitely the biggest winners when it comes to cheap gasoline,” said Alex Goldstein, founder and CEO of Chicago-based energy retailer Eligo Energy. “They are able to immediately see the difference of lower prices at the pump in their checkbooks and as a result will be more likely to use their savings in other areas of the economy.

Industries such as manufacturing, agriculture and transportation also benefit from low fuel prices, said David Holt, president of the Consumer Energy Alliance (CEA), which counts representatives of those sectors among its membership. “Reducing the cost of energy for those sectors of the economy helps their bottom line,” he said.

Noting that cheap fuel “absolutely” benefits the economy, Holt contends that two factors have nonetheless diminished its positive impact. First, a “convoluted, inconsistent” regulatory regime has made the U.S. energy market among the world’s least predictable, he said. “That unpredictability does trickle down” in the form of price complications in the energy market that affect other sectors of the economy, Holt explained.

In addition, Holt pointed out the U.S. economy has sunk into a recession or is on the verge of doing so. “What you’re seeing now is a downturn in commodity sectors,” he said, adding that consumer demand is not as robust as it could be. Two gauges of consumers’ attitudes about the economy – one from The Conference Board and another from the University of Michigan – underscore Holt’s concerns about demand.

“With reduced prices for consumers, theoretically every household gets, say, $2,000 more in their pockets every year,” Holt said. “You’d think that money’s getting spent, but with the high levels of unemployment and underemployment it’s not having the same economic effect as it has had in the past.”

Further stifling consumer demand is a faltering upstream oil and gas sector, which for much of the past decade has stood out by exhibiting robust growth, added Holt. “Now that oil and gas is in a downturn, that’s probably contributing to the lower benefit (of cheaper energy) to the broader economy,” he said.

“Low oil and gas prices do help consumers in the short term by reducing fuel and electricity bills and increasing the amount of disposable income,” added Uday Turaga, founder and CEO of Houston-based energy consulting firm ADI Analytics LLC. However, he pointed out that a prolonged low-price environment can hurt a number of major economic sectors.

“Sustained periods of low oil and gas prices would … significantly curtail capital spending by oil and gas companies and thereby business for other economic sectors such as steel, industrial equipment, engineering and construction services,” he said. For instance, he said these industries are feeling the effects of reduced activities in shale plays in states such as North Dakota, Pennsylvania and Texas.

Even refiners, who until recently reaped the benefits from cheap crude oil, are beginning to feel the pinch from low fuel prices. The inexpensive feedstock, coupled with solid demand, prompted refiners to process greater crude oil volumes. Increasing utilization demanded greater fuels storage, and inventories of

gasoline and distillates are now unusually high. According to the U.S. Department of Energy’s Energy

Information Administration (EIA), U.S. gasoline stocks are well above 5-year norms and distillate stocks are at the top of the range for the period. As Bloomberg recently reported, U.S. refiners have begun to scale back fuels production to cope with the glut. For European refiners, a similar trend is playing out. Reversing their recent trend of strong earnings, refiners are expected to see more modest profitability in 2016.

A trickling down upstream ‘survival mode’

“The first and most pronounced effect of falling gasoline prices is the impact to the upstream oil and gas industry employees,” said Will Speer, Houston-based senior petroleum analyst with GasBuddy.com. “Retail gasoline prices can’t fall this far without crude price falling significantly as well.”

Speer pointed out that motorists can eventually feel the pain of a prolonged low-price environment, too. Although widespread job cuts are a clear sign of the “survival mode” in which exploration and production companies find themselves, the firms are also shelving plans to launch expensive projects to find and exploit new sources of crude oil, he said.

“If enough of these projects are cancelled and if the world needs those extra barrels of crude in the future, the industry won’t be able to return the lost production quickly,” explained Speer. “It takes many years to develop a lot of these projects.”

“As the world stares at an oil oversupply situation and record low gasoline prices, investments moving away from the oil and gas industry could make it harder to keep up with demand in coming years,” continued Speer. “Higher world demand for oil with a less robust supply picture could spell higher gasoline prices down the road. Even if the typical motorist isn’t impacted by the oil industry’s reduction of headcount, the budgets and oil projects being slashed could impact you still in the end.”

Dan Kish, senior vice president with Washington, D.C.-based Institute for Energy Research, also expressed concerns about what a lack of upstream investment could ultimately mean for consumers. Moreover, he cautioned against the imposition of new regulatory burdens by government on the oil and gas industry at this precarious time.

“Low prices are great for consumers, but if oil prices stay low for a long time, companies will not invest in the fuels we need for tomorrow, and prices will skyrocket right back up,” Kish said. “This is true for any product…if the price becomes too low for the people who produce it, they will stop producing it until they can recover their costs. The worst thing to do right now is for the government to make it harder to produce energy here at home, or to raise taxes on energy, which makes it more expensive to produce products here at home.”

As Reuters recently reported, cheap gasoline prices – coupled with “relatively stable” corn prices – have put the renewable fuels sector at a disadvantage as well. In fact, Goldstein sees the status quo dealing a more crushing blow to renewables.

“While oil companies will see their bottom-line affected in the short-term, ultimately alternative energies

like ethanol will take the biggest hit from lower gasoline prices dragging their own prices down, meaning smaller profits and struggle for alternative suppliers,” he said.

Chris DiPaolo, Houston-based team manager with The Boston Consulting Group’s Energy Practice, sees ramifications in alternative energy besides just ethanol. “I don’t think it’s just conventional wisdom that low oil prices will slow the growth of renewables,” he said. “For each marginal consumer that chooses not to get an electric vehicle or is able to come out on the other side of the ‘should I install solar panels’ question, it takes that much longer for these alternatives to move up the curve.”

Ripple effects

Beyond the energy sphere, the effects of cheap fuel – particularly in regions heavily dependent on the oil and gas industry – weigh on construction, food service, real estate and other “supporting” industries, said DiPaolo.

“When you have this volatility, especially on the way down, it gives oil and oil service companies pause,” he explained. “When these companies start to slow down, the employees will slow down as well. Maybe they are less likely to build a new house, move into a more expensive neighborhood, go out to eat, have their car detailed, or hire someone to clean their house or mow their yard. This encompasses that ‘multiplier effect’ you see when positive or negative events filter through the economy.”

Houston real estate agent and former Wall Street energy commodity broker Michele Marano points out that saving money on fuel may help individuals to keep “small increments of cash” each month. However, she says that such modest savings typically do not inspire one to make a major lifestyle decision such as buying a house.

“Because (paying less for fuel) is viewed as somewhat temporary, most know that it will likely be accounted for in the near future with higher prices,” said Marano, the founder and CEO of Real Estate for the Energy Professional.

“The downside of cheap fuel is that although lower gasoline prices put more money in people’s pockets, it also means layoffs, especially in areas heavily impacted by oil – like Houston, which ultimately leads to a slump in housing demand,” she said. “In response to a slump in home sales, inventory levels grow and, over time, home values weaken.”

The Houston Association of Realtors (HAR) recently reported nearly 10-percent declines in both total property sales and total pending sales for the region from December 2014 to December 2015. “With oil dropping to levels around $30 a barrel, I think it’s fair to say that the Houston housing market is going to remain cooler for at least a little while,” HAR Chairman Mario Arraiga said in a Jan. 13, 2016, press release.

“Although cheap gasoline prices are good for the consumer, the longer-term effects can be bad for the economy,” concluded Marano. “All property, whether commercial or residential, is affected by lower gasoline prices … and this does have an impact on construction of new buildings, retail centers, office space, etc. The upside to this is that with lower property values, this can be viewed as an investment opportunity for those who are able to buy and build now, or buy and hold for a sale or construction at a later time.”
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Real Estate Love Match

REAL LOVE, REAL ESTATE: THINKING IN TERMS OF LOVE WHEN BUYING A HOME.

MICHELE COMPARES LOVE AND MATCHMAKING TO BUYING A HOME.  WHY WOULD YOU BUY A HOME YOU ARE NOT IN LOVE WITH?

Love Lesson 1:  Be Prepared to Make the Commitment.
Shopping for a home is like looking for a mate.  Until your ready to make the commitment, you’re probably not ready to settle down with a home.  Ask yourself first if you’re willing to take on the responsibility of owning up to being a good homeowner.

Love Lesson 2: Know What You’re Looking For.
Do you require the 5 star treatment? Have a good idea what attracts you to a property.  Look for characteristics that please you.  Draft a list of requirements that you desire so that when you’re ready to settle down, you are shopping the right criteria.

Love Lesson 3: Keep “Geographically Desirable” in Mind.
This element is extremely important because location determines how conveniently located your home is to your lifestyle.  Also, consider the value of the location vs. the price.  Look at the surroundings and ask yourself if there are possibilities of growth, improvements and changes that will either hurt or harm your value.

Love Lesson 4: High Maintenance May or May Not Work for You
First impressions are everything, however, look at the overall property and its good and bad points.  Consider the repairs and improvements that may be necessary and its associated costs before you move on.  Keep your list in mind.  You will need to know how to identify the qualities that please you, without being distracted by little things that don’t really matter.

Love Lesson 5: Your Property is a Reflection of You.
Your home should please you and make you happy.    In other words, it should say a lot about the person you are.  Everything you like in life is somewhere reflected in your home, whether it is style, color, or personal belongings.   Loving where you live is part of the romance of owning.

Love Lesson 6: Nurture it Extensively.
If you treat your home with care, chances are, you’ll have fewer problems in the future.  If something breaks, take care of it timely, rather than letting a maintenance issue become a bigger, costly repair.  Taking proper care and paying attention to maintenance will most likely bring you a favorable return in the long run.

Love Lesson 7: Investigate the Red Flags but Don’t Judge by a Bad First Impression.
Determine how much you are willing to put into it.  If it’s going to require a lot work, maybe it’s not for you.  Determine how extensive the repairs or improvements are before purchasing.  If it requires high dollar repairs or a complete overhaul, consider your checkbook and schedule.  It may work for you in the long term, but in the interim, your life may be a disaster.

Love Lesson 8: Considering Multiple Homes
If you’re buying a second (or third), decide if you really have the time, money and responsibility to put into it.   There is always the risk of owning more than one home and not being able to enjoy the purpose of having it.  A second home needs to be treated as good, if not better than the primary.

Love Lesson 9: Determine whether it is Long or Short Term
When considering a purchase, be realistic about how long you plan to hold the property. If you are planning to stay short term, you may not want to buy the highest priced home on the block.  Pay close attention to the location in which you are buying and be aware of the surroundings that could affect its value.  If you plan to hold the property for many years, consider the same factors; however, be sure it is a home you absolutely love, while making sure you can grow into it and not out of it.
Whether you are buying long or short term, identify the condition of the economy and the current real estate market.  This will have a lot to do with your negotiating power.

Love Lesson 10: Head Over Heals
The most rewarding part of owning is falling in love, day after day, when you walk  in to your home.  If you haven’t experienced that…..you’re probably not in love and may want to consider making some changes.

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Chinese buyers feed new energy into Texas real estate

“Investors in Chinese equity markets will flee to safe assets, and few assets offer the combination of relatively modest risk and high returns as U.S. real estate,” says a researcher at Zillow.

| 

Tuesday, 28 Jul 2015 | 10:58 AM ET

For the full article with Diana Olick – CNBC interview with Michele Marano

http://www.cnbc.com/2015/07/28/chinese-buyers-feed-new-energy-into-texas-real-estate.html

 

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What Determines Value in a Changing Market?

What determines Value in a Changing Market?

I am currently in the market for a home. I found a builder who caught my attention in an area under construction, 37 homes inside a gated community. Although this development is not quite flourishing, still with half the number of lots available, my concerns of value outweigh the personal attachment I have to stone front elevations, tile roofs and1-story floor plans in an ideal location.

The 2 most important factors to consider in determining value come down to location and timing. There are areas, which dictate higher values and will appreciate far faster than others. Some areas may not increase in price at all, even over many years and these are the reasons why.

If you are buying at a time when the market has already reached a peak (and how to know when that is-to be discussed in my next article), be cautious if you are paying full price. There are areas where new home construction is still going strong. The significant question to ask is whether an area is going to flourish right away or if it will take years for the value of your home to catch up to the number, which it was purchased at? If you buy in a new development where there is enough land to allow building for years, then chances are the value of your home will not increase until the community is completely finished. Supply has to be limited in order for prices to increase and the market needs to remain healthy. If the inventory is excessive, and demand is not, prices will lower or not increase.

If you buy in an area where there isn’t excess land for new development, and considering the location is attractive, your purchase may show a substantial increase over time. Areas where there is minimal room for new construction, leaving only existing lots for teardown and rebuild will help prices increase in the neighborhood.

Timing has a lot to do with value in a purchase because the dollar value at the time of purchase may or may not be in line with the position of the market. For example, if you paid full price for a home when the market was steadily moving in sales, prices may have been overinflated from where they would traditionally have been. When supply is low and demand drives a market, prices accelerate, and a furry in buying may have put you in a home, but at a disadvantage in the price you paid. Let’s be realistic. No market ever stays the same. Many economic factors will cause a rise or a decline in momentum, resulting in price changes in homes. The most important point is that real estate doesn’t change over night. It takes time for economics to affect a market and make an impact. So head the rush, as things in the market will change; it just takes time to see the turn.

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The Art of Negotiations

Negotiatephoto

Negotiations result in more than a handshake.

When it comes to negotiations, Donald Trump has always been my favorite in demonstrating how it’s done.  Now, with over more than a decade of practicing, I have found my own style and techniques that work.

Having worked for years in an environment where negotiations were ingrained in every deal, I was automatically trained from some of the best dealmakers on Wall Street.   Today, every deal I touch involves negotiations and it is rare for a deal to get by me with out some aspect negotiated.

Being involved in today’s market where the buyer is no longer writing full offers, negotiations are necessary.  Taking factors into consideration, such as global and national economics, and also the client’s needs and concerns, all are part of the means of negotiating.  This plays into how much, when and how hard you vie for your position.

If one party understands negotiations, and the other does not, the deal will lean in favor of the party who knows how to negotiate so it is important in understanding which side of strength you are on.

Negotiating is an art.  It is a tool that is taught but it is inherited as a natural talent.  The shrewdness of an individual’s business understanding will drive the competency of the negotiator.

 

 

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Determining Home Values in a Volatile Market

I have had a number of conversations with real estate clients – many of whom are energy industry professionals- regarding the real estate market. Whether the energy professional is overseas or here locally, or looking to purchase or sell, the conversation is one that is shared, as it applies to my current situation as well.

I too am in the market to buy. I found a builder who caught my attention in an area under construction, 37 homes inside a gated community. Although this development is not quite flourishing, still with half the number of lots available, my concerns of value outweigh the personal attachment I have to stone front elevations, tile roofs and1-story floor plans in an ideal location. The 2 most important factors to consider in determining value come down to location and timing. There are areas, which dictate higher values and will appreciate far faster than others. Some areas may not increase in price at all, even over many years and these are the reasons why.

If you are buying at a time when the market has already reached a peak (and how to know when that is-to be discussed in my next article), be cautious if you are paying full price. There are areas where new home construction is still going strong. The significant question to ask is whether an area is going to flourish right away or if it will take years for the value of your home to catch up to the number, which it was purchased at? If you buy in a new development where there is enough land to allow building for years, then chances are the value of your home will not increase until the community is completely finished. Supply has to be limited in order for prices to increase and the market needs to remain healthy. If the inventory is excessive, and demand is not, prices will lower or not increase.

If you buy in an area where there isn’t excess land for new development, and considering the location is attractive, your purchase may show a substantial increase over time. Areas where there is minimal room for new construction, leaving only existing lots for tear down and rebuild will help prices increase in the neighborhood.

Timing has a lot to do with value in a purchase because the dollar value at the time of purchase may or may not be in line with the position of the market. For example, if you paid full price for a home when the market was steadily moving in sales, prices may have been overinflated from where they would traditionally have been. When supply is low and demand drives a market, prices accelerate, and a furry in buying may have put you in a home, but at a disadvantage in the price you paid. Let’s be realistic. No market ever stays the same. Many economic factors will cause a rise or a decline in momentum, resulting in price changes in homes. The most important point is that real estate doesn’t change over night. It takes time for economics to affect a market and make an impact. So head the rush, as things in the market will change; it just takes time to see the turn.
______________

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All Eyes on Texas Real Estate

http://oilpro.com/post/9722/all-eyes-texas-real-estate

When you live in a state heavily influenced by oil, saddle up and hold on for the ride. What comes up must come down and real estate has room on the downside. The real question is really just how much. When I visit with nine out of ten of my clients, who are all energy professionals, they have one thing in mind, housing pricing in Texas. They buy out of need, but wait, didn’t most people already buy when Texas was booming?

Demand poured in and buying was frenzy. Now, demand is leveling off and prices will too. Where you purchased will dictate whether it’s a reward or will be at risk. If you think you’ll find a goldmine this time around, think again. The last time I saw a foreclosure in Tanglewood, Houston people were lined up for showings and that was when banks weren’t even lending money. Now, Texas has more money pouring into the economy from all parts of the globe and a “deal” might be just being happy with current pricing.

Considering the square foot of residential pricing is not at $2500.00, yet, there are lots of deals out there. It’s all relative to what you’re used to. Getting something that’s already discounted isn’t such a bad deal even though it doesn’t have a sale tag on it. But watch out for those new high rises. Now that crude is at $50.00 a barrel, you may want to think twice about buying that new penthouse. If you already have, when crude was priced at $100.00, well, let’s just say you might just have to wait for the next merry-go-round. High-rises take about as long to build as a boom, so by the next time we see $80.00 oil, buyers will be back at those doorsteps again too.

Texas is a rare breed when it comes to real estate. It’s a prize in itself. It’s my job to convince clients to keep their eyes on the prize and be prepared for price fluctuations in real estate until the price of crude levels. Although it’s still too early, be prepared. If you snooze, you lose and what may have been considered a deal, may already have been a deal closed by someone else. For $120,000.00 you can get a fully renovated 740 sq. ft. condo in a desired neighborhood. If that’s not a deal, look at the $850,000 price tag for a 30-year old, 650 sq. ft. condo-type coop in Chelsea, New York. It seems some builders in Texas are striving for the $2500.00 Tribeca, New York square foot prices, but now they may need to put on the breaks. The boom was great but Texas pricing still hasn’t neared Manhattan’s.

Being savvy with Texas real estate can be a talent or a curse. It doesn’t take a genius to figure out the correlation between oil and real estate. When one goes down you can’t expect the other to go in the opposite direction. This is not the East Coast or California and even though jobs flourish here, real estate boundaries stretch far and wide and demand will not hold the same as when oil was priced at $100.00 a barrel.

What goes up must come down and real estate will come down. If you bought in one of those areas where builders picked up the last scraps of land, hold on to your saddle ‘cause it too will rebound the next time around.

>*Michele Marano is a licensed Real Estate Profesional and the Director/Founder of Real Estate for the Energy Professional, Champions Real Estate Group.*

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Oil Boomtown, by Michele Marano Real Estate for the Energy Professional

As I am on my way to the Formula One Race in Austin, which is where the U.S. leg of
the International F-1 series takes place, I marvel over the development that has been
created by the U.S. Shale boom in the last several years. I have lived in Houston since
1990, with relocations back and forth from the East Coast and I have seen the consistent
development of a city as it survived different economic turbulences. When you hear the
words oil boomtown, there is something nostalgic that comes to mind, like visions of
Williston, N.D., but with Houston, it reinforces an already established global presence,
echoing the vibrations of oil and energy markets.

Unlike Williston, N.D., whose history has been rewritten by the U.S. Shale boom,
Houston expanded this year alone by 35,000 new residences, while over 100,000 new
homes have been added and 119,000 plus job created. For every job lost since 2010, three
jobs have been replaced. The designing of my entity, Real Estate for the Energy
Professional was not created by accident either. Having worked for over a decade in
energy commodity markets and then Houston’s real estate, I realized the need for a
dedicated service to a city that obtained title to “Energy Capital of the World.”

Houston’s housing market skyrocketed over the past several years, after the initial breaks
on development were placed, following a recession that seemingly had no end in sight.
The city had an overwhelming economic expansion in all energy sectors, as well as
additional industries that drives Houston’s economy, however, housing supply was short.
Low inventory levels resulted in an increase in home prices due to people having to bid
over and above listing prices, which resulted in higher prices across the city. This helped
many neighborhoods in Houston that would not have likely seen price hikes, but did.
The idea of buying brand new construction feet away from railroads tracks would not
have been a first inkling for an out-of-towner, but there were requests for that too.

With people moving here from all parts of the world, different parts of Houston have
been developed to serve different lifestyles. Most of my clients have come from
everywhere but Texas, and many are from abroad, all vying for a home to which they feel
familiar. Over a half dozen new luxury high-rises were added to the Galleria and Inner
Loop locations. For $3,000.00, you can lease a 950 sq. ft. unit overlooking Post Oak
Blvd. or for $2,000/month you can get a 624 sq. ft. place at City Centre and a 3 bedroom
for $7,500/month. Last year at this time I showed the Penthouses at Hotel Sorella to an
energy executive and it cost $5,000/month for a 2 bedroom, 2 baths, with all the same
amenities as the hotel. This year, the prices have increased to $10,000/month and now
they have a new 1 bedroom for lease for $7,500/month.

The beauty of Houston is that as oil prices increase, so does its real estate and
development. The only real difference in watching oil price change versus real estate is
that oil changes instantly and real estate is the after-effect of it. Not everyone correlates
the two markets, but having worked in both energy commodities and Houston real estate,
I have witnessed the relationship of how it directly affects the Houston market. Now, as oil prices are dropping, and real estate supply has caught up with demand, prices will likely flatten to soften and a shift from a sellers market to a buyers will most likely be the
after-affect.

As for the Formula-One race in Austin, the world-class track draws attraction from
drivers and fans from all over the world. The Austin Circuit of Americas event is as
symbolic to the venue as oil is to the state; Texas sized and growing.

Michele Marano is a real estate professional with brokerage firm Champions Real Estate Group.

 Article is provided by BreakingEnergy.com
 http://breakingenergy.com/2014/11/13/real-estate-for-the-energy-professional/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BreakingEnergy+%28Breaking+Energy 
FormulaOne