Between the fall of 2014 and this spring, oil prices fell 42 percent  and housing market watchers have been waiting to see what will happen in parts of the U.S. with heavy oil-related employment. The first potential piece of this data came out in April when the state-level employment report showed a month-over-month decrease in employment in Texas and Oklahoma for March 2015 . Texas saw non-farm payroll employment fall by 25,400, and Oklahoma saw a drop of 12,900.
While some states and metros may see large drops in employment related to low oil prices, it could be some time before impacts on mortgage loan performance are realized. In the interim, we can assess the health of areas that have heavy oil employment to see how their housing markets might withstand income loss.
The share of jobs related to the oil sector by metro area can be quantified with the County Business Patterns  (CBP) data series which tracks the number of employees by industry. Using this CBP data, we can focus on metros  that have the largest share of oil-related jobs and examine their house price performance and equity position. The metro with the largest share of oil-related employment is Midland, Texas, with 26 percent of all employees working in the oil sector, followed by Odessa, Texas with 18 percent (see Table 1).
House price performance in the majority of the oil metros has been strong, with 15 of 25 metros showing a year-over-year Home Price Index (HPI) increase of more than 5 percent in March 2015 , and only two metros showing a year-over-year HPI decrease (Figure 1). However, strong HPI growth can be misleading as a measure of market strength. For example, the HPI in Bakersfield, Calif. increased by 4 percent year over year in March 2015, but was still 35 percent below the peak, while the negative equity share was 18 percent (about twice the national average).
|Table 1: Metropolitan Areas with the Highest Concentration of Oil Employment|
|Metropolitan Area||Oil Employment as a Share of Total Employment|
|Houston-The Woodlands-Sugar Land, TX||5%|
|Source: CoreLogic calculations on Census County Business Patterns series.|
A measure of strength should show how well mortgage borrowers would be able to withstand a large decrease in house prices. Figure 1 shows the share of properties with mortgages in the oil metros with equity between zero and 20 percent (otherwise known as under-equitied) along with the year-over-year HPI. In addition, the size of the bubble in Figure 1 shows the share of oil-related employment, and the color of the bubbles changes by state. Not surprisingly because of the recent increases in HPI in these areas, mortgaged properties in many oil metros have a strong equity position with a low share of under-equitied mortgages. Victoria, Texas, had just 6 percent of properties that were under-equitied. Midland was next, with 7 percent.
The metros in the best position to withstand a decrease in home values would be those in the bottom portion of Figure 1, and the metros least able to withstand a drop in prices would be those in the upper portion of Figure 1. Note that all of the metros in the bottom portion of the chart are in Texas. Therefore, while a metro such as Midland may have a heavy share of employment in oil (26 percent), it is among the best positioned metros to survive a large drop in prices. In contrast, Odessa is not as well-positioned, with an 18 percent share in oil-related employment and an 18 percent under-equity share. http://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm.West Texas Intermediate spot price change from September 2014 to April 2015.  http://www.bls.gov/news.release/archives/laus_04212015.htm. Note that the April employment report showed small increases in non-farm employment for Texas and Oklahoma.  More information on the CBP can be found at http://www.census.gov/econ/cbp/. For this analysis, we used the county-level CBP data and summarized it to the metropolitan level to match it to metropolitan areas and metropolitan divisions provided in the CoreLogic HPI and negative equity data. Employment sectors used were Oil and Gas Extraction, Drilling Oil and Gas Wells, Support Activities for Oil and Gas Operations, Oil and Gas Pipeline and Related Structures Construction, Mining and Oil and Gas Field Machinery Manufacturing and Pipeline Transportation.  This analysis includes only metropolitan areas with a population of 50,000 or more. CoreLogic included 25 markets in this post, though there was not equity information available for Farmington, NM, and therefore this metro is left out of Figure 1. Metros included in this post are: Abilene, TX, Anchorage, AK, Bakersfield, CA, Beaumont-Port Arthur, TX, Casper, WY, Corpus Christi, TX, Farmington, NM, Fort Worth-Arlington, TX, Grand Junction, CO, Greeley, CO, Houma-Thibodaux, LA, Houston-The Woodlands-Sugar Land, TX, Lafayette, LA, Laredo, TX, Longview, TX, Midland, TX, Odessa, TX, Oklahoma City, OK, San Angelo, TX, Shreveport-Bossier City, LA, Tulsa, OK, Tyler, TX, Victoria, TX, Wichita Falls, TX, and Williamsport, PA.  References to HPI and negative equity throughout this blog are for March 2015. While price changes from September 2014 might show a different pattern, it is difficult to uncouple the effects of lower oil prices and seasonality in the HPI, and therefore year-over-year price changes were used in this blog.