The percipitous drop in American housing prices is causing a lot of the consternation in the financial markets these days. But it’s not without precedent in the U.S., or at least in Texas, where many doutbtless remember their own housing prices "going south" in the wake of the oil bust in the early 1980’s.
The 1970’s were in general an era of high energy prices, but two spikes in particular were bookends to the whole adventure: the 1973 embargo spike after the Yom Kippur War (which also signalled the emergence of OPEC as a force to be rekoned with,) and the 1979 spike that went with the Iranian Revolution. The latter actually detonated a 2-3 year spate of high oil prices, which fuelled a boom for both the oil companies and the oilfield service industry.
It was a great era to be in that business. In Canada it was the era of the Dome Petroleum bubble. In this country, the oilfield states–Texas, Louisiana and Oklahoma in particular–had an economy which basically went nuts. Detroit seemed to empty itself out and move to Houston. The Offshore Technology Conference hit its peak attendance in 1982 at just over 100,000, something it has never done since. It was a time when it was virtually impossible not to make money.
But that came to an end. A combination of the effect of energy conservation measures and the emergence of the spot market induced the collapse of oil prices, and the industry that went with it. Prosperous companies literally disappeared overnight, leaving a wake of rusting equipment and unemployees. The housing market collapsed too. In 1982 my brother bought his house in Spring; in two years it had lost half of his value, and he was (along with a lot of other people) "upside-down" on their mortages. Some responded by simply abandoning their homes in the dead of night, leaving the bank with the keys, to take a serious haircut on the loan. The Texas financial system, once a network of independent regional banks, was taken with it, never to regain its previous autonomy.
The whole disaster changed the psyche of the region to a more sober and, in many ways, mature one. Today the entire world is facing what the oilfield had to deal with a quarter of a century ago. But now everyone cares; this country has an economic elite with a very low tolerance for pain, one born in part of attitude and in part from very high leverage of themselves and their assets. It’s easy to ignore a problem when it isn’t yours, but now it’s everybody’s.