27 Jun 2014 More

Bakken Oil Boom Sends North Dakota Real Estate Prices Through the Roof

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Oil rig in the oil-rich Bakken region
When they say real estate prices in North Dakota are going through the roof, they’re not exaggerating.  The price of homes in the oil-rich state, especially in the Bakken formation region, is not only up 20 percent since 2011, just getting a roof just over your head is not as easy as it sounds.  The average price for a home in the state now exceeds $200,000.  North Dakota now ranks only second to Texas in total oil production.

"Houses have appreciated statewide and inventory is low in the whole state," says Jill Beck, CEO of the North Dakota Association of Realtors. "That comes as a shock to a lot of people."

Tight supply and strong demand have also sent the price for rental properties to new record highs.  North Dakota has the lowest unemployment rate in the nation at just 2.6 percent.  That’s a full percentage point below second place Nebraska almost seven points below last place Rhode Island.

Production in the oil-rich western part of the state has completely transformed the state’s economy.  The Bakken shale deposit has also made housing unaffordable to many who have lived in the state all their lives.

In fact, in some areas the average price for a home has as much as quadrupled.  A decade ago, before the oil rush, the state was actually losing population.  Officials in North Dakota as recently as 2007 were even holding job fairs to try and get people to move there.  Now, it’s all they can do to put a roof over their heads.

Good news for some, not for others

New data shows that the state has a glut of as many as 20,000 jobs, an all-time population high and the lowest jobless rate ever.  For those who bought their home seven years ago, the jump in real estate prices has been a welcome boon.  For those looking to buy now, if they are not enjoying the windfall from the oil boom, they might just find it impossible to afford a decent home now.

"Young families are being priced out of the state," says Beck. "I've heard stories of an entry-level home being listed at night and there were 10 clients lined up in the driveway the next morning to see it."

The average sale price for homes in 2013 was $201,991.  Compare that to just $168,105 in 2011.  In fact, a new study shows that rental property in Williston, which sits right in the middle of the oil boom, has the highest average in the entire United States at $2400 per month for just a one-bedroom apartment.  That’s more than Los Angeles.

"You're lucky if you can find anything under $300,000," says Jeff Zarling, a business developer in Williston. "What this is really causing is people are becoming roommates."  Affordable housing for those in need is also setting new record highs.

Jolene Kline, executive director of the North Dakota Finance Agency, says that the state’s Housing Incentive Fund, which supports tax-deductible donations to help produce more affordable housing, will be able to build 650 units this year.  Still, that’s not nearly enough.

“We’re 3000 short,” says Kline. 

A sleepy state comes alive

North Dakota was once, not so long ago, a sleepy state where immigration meant a cold front was on the way.  The Bakken and Three Forks formations changed the state seemingly overnight.  These formations differ than many because not only are they rich in oil, but natural gas as well.  With a small population and little infrastructure, the area was ripe for a boom.  Many liken it to the Texas oil boom of the early 20th century.

Since 2001, the state’s oil production has increased almost 1000 percent.  Before the boom, North Dakota had just 15 oil rigs.  By the end of 2012 that number had jumped to 180.

Because it was not an already established oil state, there was virtually no supporting infrastructure.  Much of it had to be built from scratch, unlike in other traditional oil states like Texas and Oklahoma.  For North Dakota, this meant jobs, jobs, and more jobs.  Jobs in the oil and gas industry and everything around it.  The boom has now spread to everything from housing to commercial real estate, restaurants and grocery stores, everything needed to support the population explosion.

The more famous of the two formations, the Bakken rests on more than 200,000 square miles of rock foundation.  Underlying elements stretch into Montana and as far as Manitoba, Canada.  Along with the Eagle Ford Shale play in Texas, it has emerged as one of the most important finds in decades.

1999 report was right on the money

A 1999 report by USGS geochemist Leigh Price estimated reserves in the Bakken at anywhere from 271 to 503 bbo.  Beginning with the Elm Coulee Oil Field in 2000, Price’s estimates were proven true.  Price died in 2000 before his research was even published.

Even though the boom is relatively new, the Bakken formation has been producing oil since as far back as 1953.  That was when the first well was completed in the region.  Nowadays it’s hard to believe North Dakota is even the same place it was ten years ago.

Still, even with the soaring price of real estate in North Dakota, even with all the money pouring into the state, progress is still having trouble keeping pace.  In Williston, at the heart of the boom, the only department store is still a JCPenney. 

"We desperately need some kind of shopping center or mall here in Williston," says Rev. Jay Reinke, 20-year resident and pastor of Concordia Lutheran Church. "You have to drive hours to find decent shopping."

That may be due to the fact that this is not the first time North Dakota has seen this kind of growth.  Back in the 1980s the state saw a similar surge, only to watch it burn out and leave many investors holding the bag.  Debts piled up in some areas of the state were not paid off until just a few years ago.  This time around, caution may be the call of the day.

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