North Dakota was once a gold mine for oil companies and a true magnet for struggling migrant workers who were looking for a new job within the industry. For five consecutive years (2009-2014), the state has had the highest personal-income growth and job creation index in the country. There were not enough properties in the main exploiting cities to accommodate all the work force. At that time, the prices of the available houses and apartments went up and real estate developers predicted that investing in North Dakota residential complexes would generate fabulous profits. Then, things took a turn for the worst when oil prices started dropping.
2015 doesn’t look too good for the numerous investors that decided to build luxury properties in Williston, Watford and Dickinson. These hundred million dollars projects were intended for the thousand workers that were hired by the oil companies and who came to North Dakota with their families. Initially, the state didn’t have enough household for all of them so the prices rose quickly. The price of a house in one of the aforementioned cities was comparable to the one of a property in New York City, but this was five years ago. The developers did not anticipate that the oil price would drop drastically. This ended production abruptly and most of the workers were soon out of job. The consequences were colossal for the investors who had to face a low demand for their houses and properties. Experts predict that in a couple of years the $2,000-$2,500 per month newly built luxury rental apartments could end up being rented for not more than $200-$500.
Statistics show that in the past year crude prices have fallen more than 50%. This has slowed down North Dakota’s booming economy, hence the real estate sector. In the first quarter of 2014, more than 4,000 workers lost their jobs. Most of these workers used to live in RVs or souped-up pickup trucks as at that moment the existent households were fully occupied and most new house projects were in the construction process. After the laid-off people returned to their hometowns, the temporarily RV camps were abandoned and developers had to face their loss and reconsider their pricing strategy.
The municipality has started taking measures to restrict temporary camps. Tougher zoning laws, changes in permitting policies, closing of major temporary bed facilities and higher camp fees are just a few of the efforts made by the local authorities to protect the real estate prices and the massive investments made in this sector.
The goal of all these changes was to force the remaining work force into houses and apartments. Experts say that is a very difficult thing to achieve as oil workers are temporary employees who need a cheap place to live until their contract ends. Then they eventually return to their home state. They can’t afford to pay a rent of $1,000 or more, nevertheless buy a$200,000 property. An RV camp or a similar cheap temporary bed camp is more suitable for their needs.
In most of the cities with oil exploiting facilities, the vacancy rate of new units reached 65% in August 2014. Nevertheless, as we speak thousands of new apartments are under construction and building permits for others have been already issued. The perfect example for understanding the gravity of this situation is Watford City where between 1980 and 2000 only three houses were built and the housing supply was more than enough for the locals. Without the temporary workers’ demand for properties, those thousands of new houses and apartments will remain unoccupied.
Due to the unsustainability of the real estate market, it is getting cheaper by the day to rent an apartment in North Dakota’s oil patch. Prices that until 2013 were comparable with the ones in New York City, Geneva or even luxury villas on holiday islands, have decreased by 15%-20% within the last couple of months as a consequence of the opening of numerous new apartment buildings in Watford, Williston, Dickinson and other oil hub cities. Demand has slipped even though there are still about 1,800 jobs available in the oil sector. As new properties are put on the market, the developers have lower standards in selecting their tenants and it is easier to negotiate a lower rent.
Still, developers are confident that the oil price drop is temporary and that in a short while production will boom, hence the revival of the real estate market. As we speak, there are still investors like Stropiq LLC that are looking to get board approval for a $500 million project near Williston. Experts claim that the property market is saturated and even if the oil price will rise drastically and workers will start flooding the state, the apartment building and residential complexes that were already built or are in the construction phase are sufficient for accommodating the necessary labor force.
In early 2014, a two-bedroom apartment in a luxury complex was available for rent for $3,200 per month. Now, in 2015, even though the complex has been fitted with luxury features such as 10-person hot tubs, free snacks and alcohol in the common lounge, the price has dropped at $2,600 per month. Generally, rental prices have decreased in the last year by 20%-30%.
Community leaders have taken a stand on the recent property prices evolution. Most of them see the rental price drop as a positive aspect for the entire community. Lower property prices means that the local community can enjoy a better quality of life. All experts agree that this region doesn’t have enough housing region and that the price drop will attract even more permanent residents.
In 2015, the average home price in North Dakota reached $195,900 and home appreciation has grown to 11.3% compared to 2015. At the moment, there are about 5,500 properties for sale and the state’s medium household income is $54,792.
Fargo is the most populous city in North Dakota, including about 16% of the state’s population. Unlike most cities in the region, its medium home value has increased by 9% within the last year, reaching a price of $185,300. Forecasts say that this value will increase by 2.6% in the next year. Also, Fargo’s medium household income is $7,000 which is higher than North Dakota’s average. The city’s real estate market is sustained by a healthy job sector and the strong local economy. The affordable property prices and the large number of available work places are the key reasons why Fargo attracts countless new residents every year.
The capital of North Dakota, Bismarck is another one of the cities where the real estate market is blooming. With a medium home value higher by 6.9% than in the previous year, properties here are being sold for $261,500. Predictions show that this index will rise by another 2.8% in the following 12 months.
In Grand Forks, there is a 2.4% increase in the medium home value index as properties cost about $172,700. Only a couple of years ago the rental vacancy rate in the city was 2.29% and homes were being sold in a few hours. Since then, new housing units have been built and the ration between demand and offer is now fairly balanced. As a result, the property prices are affordable and there are more options for the average buyer.
Minot has some of the most expensive properties in North Dakota. Usually, houses here cost about $218,900 and the home appreciation went up by 11.3% in the last year. Located near the Canadian border, the city is an important trading center. This means that the real estate market is sustained by a prosperous economy and a healthy job sector. Also, its population is young as the medium age of its residents is 33 years old.
North Dakota real estate market is divided into two categories- the oil hub where production is volatile and the populous cities that are sustained by a strong local economy. Throughout the state there has been a boom in the development of real estate projects, but the prices of these houses and apartments are strongly correlated with the evolution of the job sector. For investors, cities like Williston, Watford and Dickinson where the price of the oil influences the property’s prices are currently a risky investment decision while cities like Fargo, Bismarck, Grand Forks and Minot are a wiser choice.