[1]On Wednesday, California-based Arch Mortgage Insurance Company [2] joined a growing list of real estate industry watchdogs warning that home price values could start declining in oil-producing states in the next two years. According to the firm’s latest Risk Index [3] report, North Dakota, Oklahoma, and Texas continue to have “elevated risks” of home price declines before 2020, due almost entirely to their prominence in the oil sector.
“Our data shows that states with high levels of employment in the oil extraction and related industries continue have high risk scores,” said Ralph DeFranco, senior director of risk analytics and pricing at Arch MI. This, added DeFranco, is in counterbalance to an otherwise rosy forecast regarding the growth of home price values in most markets nationally.
The national average risk score for home price declines in most markets, according to the index, is holding at a steady 8 percent (since February) DeFranco said. However, North Dakota, Oklahoma, and Texas, the report found, each are at a 33 percent risk of seeing home prices drop.
Texas has the two most at-risk metro areas, Dallas and San Antonio. Each area, DeFranco said, has about a 42 percent chance of price declines in the next two years. Austin and Houston, the latter of which is poised to become the energy industry capital of North America, have also become riskier metro regions, with the likelihood of imminent price drops now both above 30 percent. Arch attributed this in addition to relatively high home prices compared to income in Austin and Houston.
That said, home prices in these areas are well above their historic long-term trends, so “affordability remains a concern,” the report stated. And while employment is currently solid, “the effects of the drop in oil prices are just starting to emerge.”
In terms of states, Mississippi joined Oklahoma and Texas as a more risky region. Whereas in Arch’s February index [4] report, Mississippi could expect a 7 percent chance of price drops in the next two years, it’s risk factor is now 18 percent. On the other hand, Louisiana saw its risk score decline from 35 percent to 27 percent, due to increases in home prices and the decline of loans in foreclosure, the report stated.
Arch’s predictions are similar to those by S&P/Case-Shiller [5]and FNC [6], which also have made the connection [7] between falling oil revenues and expected declines in home prices, particularly in Houston.