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yep, and will be a good opportunity for those of us wanting to upgrade to something a little bigger. bigger bonus will be if you can hang on to your older home till the cycle hits the top again, then sell that one. and when it bottoms out, buy another upgrade, then upswing and sell the other one. Eventually, you're in a 5 million dollar home in west u for the price of a bungalow in Montrose.

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Maybe if you guys weren't up all night posting on HAIF the economy would be doing better. tired workers are inefficient workers.

I'm sorry, I've been trying to keep my mouth shut for several days now but there is just too much misinformation to move on. HTXUSA, not sure whether you are a troll or whether you believe what you're

Are you hoping for a drastic downturn so you can afford to move out of your parents house?  

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Did Tumbling Oil Prices Save Houston?

 

Forget just surviving a weaker oil market; the experts at Bisnow’s Impact of Oil and Gas on Real Estate event last week think we should thank it. One more year of $100-plus oil could’ve been the ruin of the Bayou City. Midway Cos chairman Brad Freels told our crowd: “I’m glad we’re going through what we’re going through.” He says nearly 20,000 multifamily units and 4M SF were set to break ground but went on hold when oil fell through the floor. That abrupt end of activity saved us from huge oversupply problems.

Tim fully agrees. His stats are even higher—he says the quickness of this downturn put 25M SF of designed space on the back burner. “12 more months of high crude would’ve turned Houston into a disaster,” he says. He says the boom over the last few years was a blessing—it created a quality of building that we didn’t have before—but it was time to stop. Plus, he says the down market will weed out the weak and incapable and leave the developers who really know commercial real estate and Houston.

The office market will bifurcate over the next two years, Bruce says. Some landlords are in good shape and will skate through this, others will really struggle. He predicts that 2016 will be worse than 2015 for office owners, 2017 will be a healing year and 2018 will be good for landlords. He expects a lot of new demand that year, including from energy, and says it should also be a strong year for the US economy. Industrial should be fine the whole time, although he thinks the next few years will be a little less robust than 2015. 

If you’ve been concerned about sublease space, prepare to get even more worried. Chip is tracking 5.8M SF of Class-A and B sublease blocks larger than one floor, and Tim says that’ll double real soon. 58% of the existing availabilities are for less than five years, which Chip says is unappealing to companies on the market. Our experts had mixed opinions on whether the increasing sublease blocks are a significant problem; Bruce and Tim say they’ll add to our difficulties, especially with demand decreasing. Brad, on the other hand, says he’s got 50k SF of sublease in his portfolio but he still gets a check every month so it’s not affecting him. The market should be better by the time those short-term leases expire, and Brad says it’s good to have some inventory on the shelf anyway. He believes one reason Dallas has effectively attracted corporate relocations is because it maintains office vacancy in the teen—so companies have somewhere to move immediately. 

Office demand is undeniably decreasing—and will do so more over the next six to nine months as energy M&A and bankruptcies pick up, Bruce says—but leasing hasn’t entirely stopped. Chip says oil companies are on the sidelines, but 50% of Houston’s tenants are non-energy, and they’re on the market looking for better deals. There’s a lot of law firm activity in particular, especially in high-profile Downtown locations. He inked one at 609 Main at Texas recently and says that building is getting strong interest overall. He’s got 500k SF of proposals, all non-energy related. Chip thinks 2016 will be pretty flat (a good time to build relationships for the next cycle, he says), but so far he isn’t seeing rents dip.


 
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Texas manufacturing is now in recession

 

Texas factory activity fell sharply in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index—a key measure of state manufacturing conditions—dropped 23 points, from 12.7 to -10.2, suggesting output declined this month after growing throughout fourth quarter 2015.


Other indexes of current manufacturing activity also indicated contraction in January. The survey’s demand measures—the new orders index and the growth rate of orders index—led the falloff in production with negative readings last month, and these indexes pushed further negative in January. The new orders index edged down to -9.2, and the growth rate of orders index fell to -17.5, its lowest level in a year. The capacity utilization index fell 15 points from 8.1 to -7, and the shipments index also posted a double-digit decline into negative territory, coming in at -11.

Perceptions of broader business conditions weakened markedly in January. The general business activity and company outlook indexes fell to their lowest readings since April 2009, when Texas was in recession. The general business activity index fell 13 points to -34.6, and the company outlook index slipped to -19.5.

Labor market indicators reflected a decline in January after exhibiting strength in November and December 2015. The employment index dropped from 10.9 to -4.2, with 17 percent of firms noting net hiring and 21 percent noting net layoffs. The hours worked index plummeted 23 points to -9.2, suggesting a sharp pullback in employee hours.
Read more at http://www.calculatedriskblog.com/2016/01/dallas-fed-texas-manufacturing-activity.html#L5re5x6Jxrjqzd61.99

 

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My stance is going to be pretty controversial but I think in light of recent internal data I'm seeing, I have to change my forecast.

 

 

Let me start off by saying, I'm not freaking because oil has dropped to $30. I try to be realistic in my assessments. For almost a year now, I said Houston would simply see a drop in its growth but that it would still stay afloat. However, the more data I'm starting to pour over and the amount of more layoffs/mergers that will be arising soon (expect more announcements), I now forecast Houston will go into a recession... this is two consecutive quarters of negative growth. This will most likely occur during Q4 2016 and Q1 2017, but if oil keeps tumbling, it could even start Q3 2016.

 

Why this change? Started a week ago actually, when I saw a new report on the health of the Houston and Texas economy... Hopefully I can release some more stats soon. I saw that home sales are starting to absolutely plummet, a fundamental indicator of a market going south. The data shows we're going to start seeing apartment units and homes sit on the market for a while. The data also shows we are starting to see board layoffs occurring in other fields such as engineering as well, an indirect fallout from the oil market fiasco. I have friends in almost every field in Houston and several of them were laid off this very week. In fact, I work for a commercial loan servicing platform and we are experiencing layoffs as well. Again, I still see bright spots in healthcare, hotel, downstream oil, and retail, but it's not enough to keep Houston on the up side. Expect most proposed projects to be cancelled. Oil can still recover to perhaps the $40s by summer but the damage to the market has already been done. The problem with what I am saying is that it's not exactly.... viewable just yet. It's going to take time to feel the full effects of what's about to hit. Think of it this way, it took 5 years for the US economy to get hit hard by the housing collapse. Edit: About 2-3 years.

 

This may sound unbelievable but an update to this same information shows we will likely see a substantial amount of bankruptcies of energy companies this year and next, several of them housed here in Houston but many throughout the world. Nothing like ExxonMobil of course but most of the smaller ones that can't meet their debt obligations. We will likely see a couple of Texas bank failures as well, the smaller scale scenario that we saw with several bank failures in the mid-80s.

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I think it's more like a small mouse in the room.  Let us know when there is some evidence of declining global demand for oil.  Maybe some evidence will appear over the next several decades; but so far, not so much.

 

 

Actually, it's pretty much an established fact that OECD countries demand for oil has been in decline for a while now. At first it was assumed that this was the direct result of the Great Recession, but enough years have passed to indicate that is not the case. Of course, this is not the case in developing countries, but even their growth has been far less than anticipated, hence the massive surplus problem we have now.

 

You've all heard of Peak Oil, the new term being thrown around is Peak Demand. Now granted, Peak Oil turned out to be wrong in almost every way, so I wouldn't expect anyone to give much credence to a Peak Demand theory.    

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You've all heard of Peak Oil, the new term being thrown around is Peak Demand. Now granted, Peak Oil turned out to be wrong in almost every way, so I wouldn't expect anyone to give much credence to a Peak Demand theory.    

 

Peak oil as people understand it is wrong in almost every way. peak demand is a better way to describe it, but it's all the same thing.

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This may sound unbelievable but an update to this same information shows we will likely see a substantial amount of bankruptcies of energy companies this year and next, several of them housed here in Houston but many throughout the world. Nothing like ExxonMobil of course but most of the smaller ones that can't meet their debt obligations. We will likely see a couple of Texas bank failures as well, the smaller scale scenario that we saw with several bank failures in the mid-80s.

I believe that there is a raft of bankruptcies coming..... Oil firms, oil service firms, and all the firms and financial institutions that service them.

I saw a business offering pass my desk a bit ago. Small, private business for sale in the oil patch. Currently the business had something like 40 service trucks (to service the oil patch) and 18-ish drivers....... I recall that the business was somewhere in Texas but it may have been elsewhere. My guess is that they only had business for 18 trucks now and couldn't service their debt on the rest of the trucks anymore ..... And That offering passed my desk when oil was in the $40s..........

There is a lot of pain coming, I fear.

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Actually, it's pretty much an established fact that OECD countries demand for oil has been in decline for a while now. At first it was assumed that this was the direct result of the Great Recession, but enough years have passed to indicate that is not the case. Of course, this is not the case in developing countries, but even their growth has been far less than anticipated, hence the massive surplus problem we have now.

You've all heard of Peak Oil, the new term being thrown around is Peak Demand. Now granted, Peak Oil turned out to be wrong in almost every way, so I wouldn't expect anyone to give much credence to a Peak Demand theory.

Your attempt to fog the issue by switching from global demand to OECD demand is, let's just say, unconvincing. Like I said, let me know when there is evidence of declining demand for oil. I'm all eyes.

http://naturalresourcecharter.org/sites/default/files/Hasan%20Qabazard.pdf

Edited by Houston19514
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This may sound unbelievable but an update to this same information shows we will likely see a substantial amount of bankruptcies of energy companies this year and next, several of them housed here in Houston but many throughout the world. Nothing like ExxonMobil of course but most of the smaller ones that can't meet their debt obligations. We will likely see a couple of Texas bank failures as well, the smaller scale scenario that we saw with several bank failures in the mid-80s.

The big problem with the bank failures in the 1980s was not just because they basically hinged everything on oil but also it was related to the savings and loans crisis. The banking industry has gone through a lot of changes and mergers. Energy too. 

 

ConocoPhillips, ExxonMobil, Chevron/Texaco all also merged around the turn of the millennium. 

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Your attempt to fog the issue by switching from global demand to OECD demand is, let's just say, unconvincing. Like I said, let me know when there is evidence of declining demand for oil. I'm all eyes.

http://naturalresourcecharter.org/sites/default/files/Hasan%20Qabazard.pdf

 

The wall street journal recently reported that Exxon cut its forecast for annual energy demand growth in China for the next decade. They also predict that China's energy demand will peak by 2030. China's demand last year was high, mostly due to filling reserves, as opposed to true consumer demand. 

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The wall street journal recently reported that Exxon cut its forecast for annual energy demand growth in China for the next decade. They also predict that China's energy demand will peak by 2030. China's demand last year was high, mostly due to filling reserves, as opposed to true consumer demand. 

Unless there's some sort of global catastrophe, how will China's energy demand peak? I mean, in the 1980s (through the oil crash and Bush 41 administration), most of China's middle class population rode bicycles, and now it's cars or mass transit, which use considerably greater amounts of energy.

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Unless there's some sort of global catastrophe, how will China's energy demand peak? I mean, in the 1980s (through the oil crash and Bush 41 administration), most of China's middle class population rode bicycles, and now it's cars or mass transit, which use considerably greater amounts of energy.

Exxon certainly seems to think China's energy demands will peak. They published this report (not a lot of details) last year:

http://cdn.exxonmobil.com/~/media/global/files/outlook-for-energy/em-2015-energy-outlook-chinese.pdf

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Unless there's some sort of global catastrophe, how will China's energy demand peak? I mean, in the 1980s (through the oil crash and Bush 41 administration), most of China's middle class population rode bicycles, and now it's cars or mass transit, which use considerably greater amounts of energy.

 

I agree it sounds completely counter intuitive and could potentially be completely wrong. To tie this back into the topic of the post, what does it mean for Houston if we never see $100 oil again?

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The wall street journal recently reported that Exxon cut its forecast for annual energy demand growth in China for the next decade. They also predict that China's energy demand will peak by 2030. China's demand last year was high, mostly due to filling reserves, as opposed to true consumer demand.

Energy is not the same as oil. The ExxonMobil study projects China's consumption of oil will continue to grow through 2040 (the end point of the study projections).

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Energy is not the same as oil. The ExxonMobil study projects China's consumption of oil will continue to grow through 2040 (the end point of the study projections).

 

Exactly.  Most of the energy "reduction" comes from coal

 

The clearest picture of the total view is table on pg. 28.  They are certainly forecasting slower oil demand growth from 2025-2040 for both China and the world, but no peak

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They have a graph at the bottom of page 25 that isn't labeled, but clearly shows a decline in every type of energy happening well before 2040. I can't get into Photobucket to post it.

 

It doesn't say if this is global or just China, and it doesn't seem to match the data provided on page 28, which shows a negligible increase in energy demand between 2025 and 2040 of 0.5%, unless that slight increase is completely front end loaded. 

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The data shows we're going to start seeing apartment units and homes sit on the market for a while. 

 

Camden sees negative outlook for multi-family in 2016

 

 

In fact, Houston — which represents Camden’s second-largest market with 12 percent of its apartment portfolio — had the worst outlook of any of its 16 markets nationally. Despite its negative outlook for 2016, Camden CEO Ric Campo said he remains bullish on Houston’s apartment market long term. “While we expect Houston to be the slowest market in the near term, it’s performing better than what others expected,” Ric Campo, Camden’s CEO, told analysts during its fourth quarter earnings call on Jan. 29. “We like Houston long term. We think it’s a great market.

 

http://www.bizjournals.com/houston/news/2016/01/29/camden-issues-declining-outlook-for-houston.html

 

I agree with Campo. The long term fundamentals of Houston are very strong but things are going to get rough closer to the end of this year. Hopefully we'll start getting more press releases on the data I'm seeing at CBRE and many others.

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i just don't see us adding jobs but i'm far from an economist. regardless, 120,000 to 20,000 YTY is a massive drop.

 

I think that's a dream. Doesn't factor in the smaller to mid-range companies that have debt obligations that they just can't meet.

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They have a graph at the bottom of page 25 that isn't labeled, but clearly shows a decline in every type of energy happening well before 2040. I can't get into Photobucket to post it.

 

It doesn't say if this is global or just China, and it doesn't seem to match the data provided on page 28, which shows a negligible increase in energy demand between 2025 and 2040 of 0.5%, unless that slight increase is completely front end loaded. 

 

It's an area chart, and the types of energy are cumulative - that's a decline in coal, not oil (or any of the other categories).  Overall energy usage is expected to decline somewhat, but not as much as the decrease in coal.  Thus, the other types of energy are relatively flat or growing (like nuclear) over the same time period

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The wall street journal recently reported that Exxon cut its forecast for annual energy demand growth in China for the next decade. They also predict that China's energy demand will peak by 2030. China's demand last year was high, mostly due to filling reserves, as opposed to true consumer demand. 

How about India?

 

How about all of Africa?

 

How about most of the rest of Asia?

 

How about South America?

 

Yes, China has moved farther quicker than any of those other markets, but the other countries have way higher population, and they're also farther behind China in getting into the energy usage game.

 

 

I agree it sounds completely counter intuitive and could potentially be completely wrong. To tie this back into the topic of the post, what does it mean for Houston if we never see $100 oil again?

 

it doesn't so much matter. 2 years ago, the BE for fracking was around 70-80, now it's around 50-60. They're increasing the efficiency of fracking. the amount of time it took to drill a well has reduced by huge factors. the question is, how efficient can they make the extraction process?  I'm trying to find some sources, but being unlucky. :(

Edited by samagon
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It's an area chart, and the types of energy are cumulative - that's a decline in coal, not oil (or any of the other categories).  Overall energy usage is expected to decline somewhat, but not as much as the decrease in coal.  Thus, the other types of energy are relatively flat or growing (like nuclear) over the same time period

 

Good call. They did them in ascending order so at first glance it looks like everything is declining. 

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it doesn't so much matter. 2 years ago, the BE for fracking was around 70-80, now it's around 50-60. They're increasing the efficiency of fracking. the amount of time it took to drill a well has reduced by huge factors. the question is, how efficient can they make the extraction process?  I'm trying to find some sources, but being unlucky. :(

 

It's not the source I was thinking about, but it's still a source.

 

http://www.bloomberg.com/news/articles/2016-02-03/texas-toughness-in-oil-patch-shows-why-u-s-still-strong-at-30

 

This isn't to say it's all roses and whatnot, but the longer it stays lower, the faster companies will push to be profitable at lower prices, and it will get better slowly, even at low prices. 

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It's not the source I was thinking about, but it's still a source.

 

http://www.bloomberg.com/news/articles/2016-02-03/texas-toughness-in-oil-patch-shows-why-u-s-still-strong-at-30

 

This isn't to say it's all roses and whatnot, but the longer it stays lower, the faster companies will push to be profitable at lower prices, and it will get better slowly, even at low prices. 

 

The ability of E&P companies to remain profitable in the face of lower commodity prices doesn't equate to industry growth, which is essential to the the local economy (especially the job and housing markets).

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as break even points for extraction get lower, then expansion will occur. it was only 2 years ago when the BE for shale was over $80.

 

The article I was looking for was discussing the advancements in drilling that have been forced because of the price drop. It showed statistics that what took 20 days to drill now can be done in 2 days. That's not great for roughnecks, but from an efficiency standpoint, that's amazing. 

 

So right now, prices are at $30, Maybe next year they're at $60, no it's not the $90-100 we saw in 2014 and previous, but if $30 is the new BE, then they'll be doing better than they were when oil was $100/bbl and it cost $80 to extract. They'll make $30/bbl instead of $20, and we'll be back on an expansionary path.

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Oil prices are going to stay low. The economic illiterate in the white house just proposed a $10/barrel tax on crude to finance alternative energy projects.

Get the sheeple used to higher priced, then when they drop, bring them back up via any means necessary.

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Which isn't going to pass.

 

which is really unfortunate.

 

as it is a tax on imported oil only, locally produced oil would benefit.

 

If oil is selling for $30, the Saudis would either need to drop the price of their oil to $20 to stay competitive, or over night, the US producers could sell their oil on US shores for $40 and still have a price competitive with imports.

 

This plus lifting the export ban would be really great, although at that point, what incentive is there to selling abroad when you have a $10 advantage in sales locally?

 

I'm no Obama fanboi, but as ideas go, this is really top notch. Congress would be idiots to not pass it.

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which is really unfortunate.

 

as it is a tax on imported oil only, locally produced oil would benefit.

 

If oil is selling for $30, the Saudis would either need to drop the price of their oil to $20 to stay competitive, or over night, the US producers could sell their oil on US shores for $40 and still have a price competitive with imports.

 

This plus lifting the export ban would be really great, although at that point, what incentive is there to selling abroad when you have a $10 advantage in sales locally?

 

I'm no Obama fanboi, but as ideas go, this is really top notch. Congress would be idiots to not pass it.

 

Which is why that idea will be strangled in its crib.

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So I was doing more reading on this potential $10 tax, some articles are saying it's only on imported (tariff essentially, as cspwal mentioned), some are saying, it's just a $10 tax on all oil produced and sold in USA.

 

If it's just a tax on all oil, I don't care whether it passes or not. People are still going to complain when gas is expensive, and still going to cheer when it drops in price a little bit. It's been over 25 years since the nation raised the gas tax, and if this is the way to do it, then go for it.

 

If it's a tariff, yeah, congress are a bunch of idiots.

 

edit: here's a fun article, with another point to consider..

 

http://www.cnbc.com/2016/02/08/obamas-oil-tax-plan-wont-work-commentary.html

Edited by samagon
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Ehhh, okay, let's go macro. US fundamentals are pretty strong, Europe is stagnant, India is growing, and Chinese growth is slowing. Really don't see a depression heading our way... just a continuation of slow growth.

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I would say the US economy is relatively strong right now.  It is certainly in the best shape it's been since before the financial crisis.  A recession is inevitable at some point of course, but right now there really aren't any strong indicators on the horizon.  

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I would say the US economy is relatively strong right now.  It is certainly in the best shape it's been since before the financial crisis.  A recession is inevitable at some point of course, but right now there really aren't any strong indicators on the horizon.  

 

Exactly. Think most Americans would say the economy is strong too if wage growth substantially improved.

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Looks like the data I've been seeing for a couple of months now is starting to hit the local news:

 

http://www.bizjournals.com/houston/morning_call/2016/02/grim-outlook-predicted-for-this-houston-submarket.html

 

 

 

The study did not go as far to call it a recession, noting that Houston did see a net jobs increase from December 2014 to December 2015; however, Gilmer did predict a moderate recession over the next two years due to the drilling downturn.

 

I too forecasted a recession later this year.

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Let the debt stacking begin. I keep saying this and I'll say it again, we're going to see a lot of bankruptcies here in Houston.

 

 

 

Within its fourth-quarter and full-year earnings report, Houston-based Ultra Petroleum Corp. (NYSE: UPL) disclosed its total outstanding debt was more than $3 billion and it's looking for restructuring options. The company said it is “evaluating a variety of strategic alternatives related to its capital structure” and has engaged Kirkland & Ellis LLP as its legal adviser and Rothschild and Petrie Partners as its financial advisers.

 

http://www.bizjournals.com/houston/morning_call/2016/02/houston-natural-gas-company-struggles-with-debt.html

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