January 13th, 2015
A new report from Trulia indicated home prices could drop with fuel prices in the metro areas with economies most dependent on the oil sector.
The report indicated this is particularly possible for markets like Houston, which is a large oil-producing market. For the moment, home prices in the city have not seen any side effects from falling oil prices, as it saw a 13.4 percent year-over-year increase for asking prices in December 2014. However, this could change as jobs in the area, where 5.6 percent of the population works in the energy sector, begin to see the outcome of declining fuel cost.
According to The Wall Street Journal, any effects on employment have yet to be seen, as indicated by the December 2014 jobs report from the U.S. Department of Labor Statistics. This is positive news for workers in places like Houston who need to maintain a stable income to transition to homeownership or trade up to a bigger home.
On the other side, oil-dependent markets will react to shrinking oil sector employment, and home prices will likely fall in these areas, according to Trulia. This presents an opportunity for homebuyers in these locations to save at the pump and on their home purchases.
A boon for certain housing markets
Trulia isn’t the first analyst to comment on how dwindling fuel prices could be positive for homebuyers. In December 2014, CoreLogic Senior Economist Molly Boesel published a report saying more consumers will be encouraged to buy homes – particularly properties that are farther from metro centers – as their travel costs decline.
The combination of more affordable commuting expenses and lower home prices could be tipping points for some consumers who have been on the fence about homebuying. However, Trulia noted the latter benefit may not become evident for some time.
“In oil-producing markets, home prices tend to follow oil prices but with a lag,” said Trulia Chief Economist Jed Kolko. “For instance, in the 1980s, the largest year-over-year oil price declines were in early- and mid-1986. But home prices didn’t slide most until the third quarter of 1987.”
Kolko went on to say the markets surrounding oil-producing ones tend to see a boost to their economies as fuel costs decline – with regard to driving and home heating, among other applications. These surrounding areas will likely see an increase in home prices once the effects of lower oil prices become evident.