Houston is well known as the city that runs on oil. For decades now, the city has led the way in oil production with a diverse number of companies dealing in oil-related products and services. The collapse of the drilling market has effectively slowed local job rates to a crawl. Worldwide, it is reported that over 200,000 jobs have been lost due to the slump in oil prices. Even large global conglomerates such as Haliburton and Schlumberger have cut thousands of jobs in the last 15 months.
With crude oil now hovering around $45 per barrel, many workers have been laid off and jobs for ex-oil workers are hard to come by. This has affected families at a very basic level. Imagine a 2-income family where one person was employed in the oil industry and earning $60k per year. Now suddenly that income is reduced to whatever unemployment income the worker qualifies for, often under $20k per year.
While there are many things contributing to the slump in the nation’s oil prices, many point to the Iranian nuclear agreement, which allows Iran to once again do business in global oil markets, as a major factor. The Iranians are believed to have a significant amount of oil in floating storage with new barrels coming from renovated oil fields. With so much speculation about Iran’s oil, CNN is now reporting that Iran is moving forward to begin producing up to a million barrels of oil per day, which could lower oil prices even further.
A new article in Texas Monthly demonstrates the power oil has to either make or break Houston. The article states that even Houston’s real estate market is being affected by the slump in pricing. Many large real estate developers have fallen into a wait-and-see outlook, which has resulted in lay-offs for construction workers as well. As the income of families is being significantly reduced, homeowners simply can’t pay the mortgage anymore. All this comes on the heels of a housing market that was still in recovery from the 2008 recession.
Optimistic reports say that Houston has endured much worse and will make a strong comeback in the near future. According to a new report from Bauer College of Business, the Houston economy has not bounced back as quickly as some experts originally predicted. During the fracking boom, the local economy added approximately 100,000 new jobs each year, which was way above the national average. Then the price of oil collapsed and left countless thousands looking for new jobs or hoping for a quick recovery.
Local investment advisor and insurance professional, Troy Sharpe, CFP®, at Oak Harvest Financial Group in Houston comments: “Every week, new people walk into the office looking for some sort of resolution to their personal money situation. Friends and neighbors alike are now experiencing challenges in paying their mortgages, car payment and other important expenses. Though our firm does specialize in retirement planning, we’ve tried to help people struggling by offering advice on budgeting, income planning investments and annuities. We also work with qualified estate planning attorneys to help individuals with concerns regarding their estates. In these situations, people sometimes ask about cashing out their 401k. Though accessing all that money just sitting there can seem like an enticing idea, the penalties are often substantial.
“For instance, if an individual under the age of 59 ½ has $50,000 in a 401k and they decide to cash it in, they will incur a 10% early withdrawal penalty, plus they will owe taxes on the money. After the dust settles, the individual will only be left with about $35,000. In addition, they will also lose the earnings the money might have produced. In our opinion, a better strategy would be to borrow from savings or take a home equity loan before you would consider borrowing against the 401k.” Borrowing from your retirement account should be the absolute last resort.
Sharpe comments, “Houston historically is a strong community that bounces back quickly. Even after the 2007-2008 financial crisis, the city’s housing market recovered within 24 months. The job market recovered faster than other regions as well. The city is known for its ability to rebound quickly regardless of the calamity.”
Oak Harvest Financial Group has offices around the Houston area. Mr. Sharpe is a CERTIFIED FINANCIAL PLANNER™ and a Registered Financial Consultant®. As president of Oak Harvest Financial Group, he hosts a radio show on KTRH 740am called, “The Retirement Income Show” on Saturday evenings at 6pm. For more information, please call 281-822-1350 or visit the website: http://oakharvestfg.com/.