Is the Oil Collapse Affecting Rents?

Is the Oil Collapse Affecting Rents?

Posted by on April 8, 2017

With 2016 in full swing, the US is coming to grips with the fact that a crisis is upon us. As of this writing, oil prices have sunk to record lows, thus continuing a free-fall that started nearly two years ago. Nearly a year ago, oil prices per barrel were $103. These days, the prices are hovering around $30/barrel with some major investment banks projecting that it will plunge even lower.

The Effects of Cheap Oil

The consequences of the oil price collapse have been rampant.  On a positive note, gas prices are as low as they’ve been for a while which should make travel by air and auto more palatable.  On a negative note, however, oil companies that have ramped up over the past few years are now adjusting to current market conditions.  According to this LA Times article, BP will be cutting 4,000 jobs by the end of 2017.  They aren’t the only ones to slash headcount either.  Last fall, rivals Shell and Chevron made similar announcements.

Rent Trends in Oil Boom Towns

While the direct effects of falling oil prices are obvious, the indirect ones are trickier (more interesting) to diagnose.  One that we’ve been paying attention to is how oil prices are affecting rental housing markets.  We all know the prevailing mainstream narrative is that rents are rising astronomically as the US has been transitioning away from a homeownership nation.  This recent article in the Wall Street Journal, substantiates that by suggesting that national rents are up nearly 4.6% from a year ago.

But as we dive deeper to get more granular, we’re seeing a different picture in certain markets where oil is a major economic driver.  Remember, we’re constantly tracking and analyzing millions of data points to deliver real-time picture of rental housing markets.  Using our technology platform, we pulled up data on three geographic areas where oil plays a major roll in the economy:  Odessa, TX; Midland, TX; and Williston, ND.  What we uncovered demonstrates substantial rent price declines across each of these markets.

As these charts depict, median rents in each of these markets have declined substantially.  A closer examination will depict that the upper quartiles (shaded yellow areas) have maintained their heights in Williston, yet have declined in both Midland and Odessa.  While it’s tough to say (conclusively) that these declines are a sign of rent price death (or newfound affordability) in these markets, we can’t ignore the impact of oil in these local economies.  Along these lines, it will be interesting to track the performance of furnished short term rentals and new hotel openings in these markets, as these products were direct beneficiaries of the oil boom.

Not All Oil is Created Equally

According to a recent article from Bloomberg, “[o]il is so plentiful and cheap in the U.S. that at least one buyer says it would need to be paid to take a certain type of low-quality crude.”  The certain type of oil referred to by this buyer is a grade of oil from North Dakota, called North Dakota Sour.

I’m far from an expert on oil and gas commodities, but with the North Dakota grades of oil commanding even steeper price declines than other grades, one can only wonder whether towns like Williston will be hit harder than other parts of the country. Time will tell and we’ll keep you posted.

Posted in: Construction


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