HOUSTON – Prices for mansions in Houston’s swankiest neighbourhood have tumbled in lock step with crude prices. The Houston Opera has offered free season tickets to patrons who lost their jobs within the oil bust. An expensive restaurant offers cut-price dinners.
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Twenty months into the worst oil price crash because the 1980s, well-heeled residents from the world’s oil capital are among the hardest hit largely because tanking energy firm shares constitute a lot of gas and oil executives’ compensation.
In River Oaks, a neighbourhood of palatial mansions and lush gardens, the average sales price of a home has tumbled to US$1.3 million from US$2 million in the center of 2014 when oil began its more than 70 percent slide, according to data in the Houston Association of Realtors and Keller Williams. Median property prices in the region have already fallen further in this downturn, which isn’t yet over, than the 16 per cent stop by the previous oil slump in 2008 and 2009.
“When oil does well, River Oaks does well. When oil does bad River Oaks does bad,” said Paige Martin, a Keller Williams broker which specializes in the area. “Few people are able to afford a US$10 million house.”
City-wide data also reveal that while overall sales of single homes fell 2 per cent in January, sales of those priced over US$500,000 tumbled 9 percent. The general median house price was US$200,000, up 5 per cent around the year, according to the realtors’ association.
While Houston’s economy is much more diversified now than in the 1980s once the city lost 13 per cent of its jobs, it remains home to 5,000 energy-related firms and also the fortunes of oil and gas executives are tied more than ever to the energy market.
Since U.S. lawmakers passed a law in 1992 encouraging “performance-based” pay, the share of investment in executive compensation has steadily increased, said David Bixby, head of the Houston office for Pearl Meyer compensation consultants.
“Now, you’re looking at 70 to 80 percent of CEO compensation available on average for gas and oil companies,” he explained. “They will come in contact with commodity price cycles.”
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ACROBATS As well as for SALE SIGN
For example, former oil executive, Kolja Rockov, whose extravagant wedding with dancers and acrobats became a local online sensation three years ago, briefly put his unfinished mansion available on the market for US$6.9 million, based on listings.
A Jan. 21, 2015 SEC filing showed he involuntarily sold 239,000 shares of the company’s tanking stock he’d used as a collateral for a financial loan. Rockov lost his job as Linn Energy LLC’s CFO in August.
Rockov said the house is actively being built, isn’t for sale, and that he left his job by mutual consent. A Nov. 5 SEC filing said he was “terminated without cause.”
Luxury car sales are also slower in Houston compared to other parts from the state and also the country.
“If you’re working for a power company, the thing is all this stress around you, it could nick you buy the car confidence, even if you are fairly huge salary,” Earl Hesterberg, chief executive of Houston-based Group 1 Automotive Inc, told Reuters.
He said excess inventory was most acute for top line BMW and Mercedes-Benz models in Texas and Oklahoma.
In a nod towards the downturn, Ouisie’s Table, a River Oaks institution, presenting its “Oil Barrel Bargain,” a 3 course dinner for the price of a barrel of oil, now around US$30.
To be sure, oil executives are not alone in feeling the pain sensation. Many blue collar jobs in oilfield equipment production have disappeared. And so do thousands of middle management jobs in oil exploration and production. A normal Uber customer is likely sooner or later to ride with a former energy industry professional.
“It pays for the mortgage,” said Matthew Clemonds, who used to mapping for pipeline companies and today works best for the ride-sharing company.
Job growth has slowed to some crawl in the breakneck pace of 100,000 annually during the oil boom; housing starts are down and subleasing of recent office space is rising, according to government data and NAI Partners, a genuine estate consultancy.
But so far, owing to its diversity, the metropolitan economy indicates remarkable resilience, adding 20,000 jobs to simply over 3 million this past year.
For example, Houston is home to the Texas Clinic, the world’s largest cluster of hospitals, research facilities and affiliated universities, which says it employs 106,000.
In the power sector, about US$50 billion being invested in new petrochemical plants to take benefit of cheap supplies helps offset upstream job losses.
“This is the best oil price downturn we have ever had,” said Ted Jones, chief economist at Stewart Title Guaranty Company. “We still have more jobs than we have ever been on history.”
Bill Gilmer, a University of Houston economist, says to date it’s paid off to tough it through oil’s booms and busts and notes that since 1969 Houston has consistently ranked one of the fastest growing U.S. cities.
“The only issue is it could be a rollercoaster.”
? Thomson Reuters 2016
