Cheap oil can hurt your housing prices

Falling oil prices might be good for your gas tank, but in the long run and for your home’s value not so much.
With home prices are expected to rise around 3.5% this year, but some energy-producing states could be facing smaller gains or even an eventual decline.

 

You see falling energy prices are good news and bad news for housing markets on a whole. Lower energy prices keep more money in people’s pockets yes and overall increase spending power. But for states with economies that are tied to the energy sector, lower oil, gas and coal prices can bring layoffs, belt-tightening and less demand for housing.


An example is North Dakota. North Dakota is the most at risk for falling home prices according to many experts. The state’s most recent oil rush has led to a housing boom as people poured in looking for jobs. The problem now comes, because oil prices sit near 12-year lows, the boom could be fading along with job opportunities. Jobs leave, areas become de-poplulated as people move away and housing markets see more empty homes than there is demand.

 

Currently experts say that home prices in North Dakota are 20% overvalued, according to a report from Arch MI. It also is estimated that the could decline as much as 46%  in the next two years. While that means there’s less than a 50% chance of a decline, the outlook could worsen if energy prices and employment weaken.

The company further identified Wyoming, West Virginia and Alaska as facing the biggest risks of falling home prices.

In addition, lower natural gas prices have put pressure on coal prices, which puts Wyoming and West Virginia’s housing markets at risk for a pullback as employment dips.
Tight inventory has been a leading cause of rising home prices nationwide, the lack of supply could keep home prices from falling too much too fast if energy prices continue to drop. We could see a huge housing issue in some states. It usually takes about 15-24 months after the start of an extended decline in the oil market, most experts say, for a housing market to react.

That means the housing market could start feeling the brunt of oil’s recent drop toward the end of this year or in the first few weeks of 2017.
 

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