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Economist: Falling Oil Prices Could Hit Housing

house-graphdownPlummeting oil prices my be welcome at the pump, but the effect of cheaper oil could alter the sale prices of homes in different parts of the country in the next couple of years, according to Trulia's chief economist, Jed Kolko.

In a report released Thursday, Kolko warned that falling oil prices—which have since July dropped by half from $100 a barrel—threaten worldwide oil-producing economies.

At home, this drop could foretell a drop in home sale prices in the country's most oil-producing states, chiefly Texas, Oklahoma, and Louisiana. These states, not coincidentally, have seen steady increases in home prices over the past few years as oil and energy production and job growth mutually ushered in better times.

But if history is any guide, these states—particularly the cities of Houston, Oklahoma City, Tulsa, and New Orleans—could relive the fallout of the 1980s, when oil prices dropped, production went down, and jobs went away.

"Within the U.S., big oil price drops have historically been associated with job losses and falling home prices in energy-producing regions," Kolko wrote.

According to Kolko, the effects of oil price plunges as dramatic as we've seen over the past half-year usually take about two years to materialize. "Since 1980, employment in oil-producing markets has followed oil-price movements roughly two quarters later and home prices have followed oil-price movements roughly two years later," he wrote.

The counterbalance to this is that home prices in non-oil producing states tend to rise when oil money drops in the South.

"Cheaper oil lowers the costs of driving, heating a home, and other activities, boosting local economies outside of oil-producing regions," Kolko wrote. "In the Northeast and Midwest especially, home prices tend to rise after oil prices fall."

But Kolko insists that any negative effects on housing markets would be localized. Outside of Texas, Oklahoma, and Louisiana, which had six cities in the 10 hardiest oil-producing home price growth markets in the past year, Bakersfield, California; Gary, Indiana; Wichita, and Toledo could experience a downswing in market prices by 2016.

About Author: Scott_Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

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