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Williston’s multifamily sector is expected to see further decreases
in rent and higher concession rates if the rig counts continue
declining over the next few months — a very likely scenario.
Slowdown in Midland-Odessa, Texas
Midland-Odessa has the highest concentration of oil and gas
industry jobs in the country and, as a result, has been in the midst
of an exceptional expansion for the past several years. The area’s
job market has grown by an average 6.4 percent per year since
2009 – more than four times the national average.
This has been driven by the oil economy in the region, which has
accounted for an estimated 40 percent of the 45,000 jobs created
since 2009. Yet, during this period, apartment development has
been unexpectedly muted. Since 2009, just 10 apartment projects
have come online, accounting for 2,400 units. For context, there are
an estimated 20,000 multifamily units in the Midland-Odessa area.
With falling oil prices, Midland-Odessa is poised for a significant
slowdown, though calamitous conditions in the job and apartment
markets are not expected. Moody’s Analytics estimates that job
growth in the area will remain positive, slowing to a still-respectable
2.2 percent this year compared to an enviable 5.6 percent in 2014,
as seen in the chart below. Moody’s Analytics provides an additional
forecast that keeps oil prices low longer than expected, and even
in that forecast Midland-Odessa’s job market is forecasted to
contract by just -1.2 percent in 2015, with job growth rebounding
to 2.4 percent in 2016.
The base forecast for Midland-Odessa’s job market results has real
estate research firm Reis, Inc., anticipating that the metro’s apartment
market will see vacancy rise to 7.0 percent by year-end 2015, up
from 6.1 percent in 2014, and rent growth remaining positive —
though slowing — to an enviable 6.8 percent for 2015, down from
7.8 percent for 2014.
Exhibit 5
Midland-Odessa Quarterly Job Growth Forecast (CAGR)
Source: Moody’s Analytics
Keeping an Eye on Some Metros
Other mid-sized metro areas that have a concentration of oil jobs
and could have some more trying times ahead include Lafayette,
Louisiana; Corpus Christi, Texas; Oklahoma City; Shreveport,
Louisiana; and Bakersfield, California. All of these metro areas
have seen oil drilling jobs enhance their local economies over the
past several years, and are poised to see that additional job growth
diminish if oil prices remain low, especially over the long-term.
From a multifamily rental sector perspective, these metros are
likely to see some softening conditions ahead but none of these
places have been hotbeds of apartment development activity, and
the impact of a slowdown in oil jobs should not obliterate local
apartment sector demand.
National Benefits and the Multifamily Sector
The rise in North American oil production and the recent drop in
worldwide oil prices should be a benefit to consumers across the
country. Greater disposable income would stimulate tourism, retail
sales, as well as a diverse set of industries, allowing the national
economy to potentially grow more than previously forecast, in turn
bolstering a generally healthy national apartment market. Indeed,
some suburban and especially exurban submarkets in most major
metros could end up seeing an improvement in overall housing
fundamentals since commuting would now be less expensive,
thanks to lower gasoline prices.
The fall in oil prices would be felt more acutely in just a few
geographical areas and in certain local jobs. Fortunately, for most
of these areas, the stimulus from oil production has simply enhanced
an already healthy economy. The slowdown resulting from the
drop in oil prices should not result in large scale, metro-wide job
losses, but rather should impact clusters of oil-dependent jobs.
Local apartment markets, many of which were already poised for
a rise in vacancy and an easing of rent growth, will likely see some
additional softening, but this is not expected to be a significantly
negative event for the nation’s multifamily sector.
Opinions, analyses, estimates, forecasts and other views of Fannie Mae’s
Multifamily Economics and Market Research Group (MRG) included in these
materials should not be construed as indicating Fannie Mae’s business prospects
or expected results, are based on a number of assumptions, and are subject to
change without notice. How this information affects Fannie Mae will depend on
many factors. Although the MRG bases its opinions, analyses, estimates, forecasts
and other views on information it considers reliable, it does not guarantee that
the information provided in these materials is accurate, current or suitable for any
particular purpose. Changes in the assumptions or the information underlying
these views could produce materially different results. The analyses, opinions,
estimates, forecasts and other views published by the MRG represent the views
of that group as of the date indicated and do not necessarily represent the
views of Fannie Mae or its management.
Lower Oil Prices and Multifamily — More Winners than Losers