Energy-Dependent Housing Markets Affected By Low Oil Prices

Housing trends are constantly fluctuating, but aside from some of the obvious factors that affect the housing market, oil prices appear to be having a negative impact on markets that are dependent upon this energy.

Auction.com recently released its Top Single-Family Housing Markets Report for Fall 2015. The report showed that among the 50 largest markets in the U.S., Seattle, Washington; Fort Lauderdale, Florida; Orlando, Florida; Palm Beach County, Florida; and Portland, Oregon occupied the top five spots in terms of rising home prices, affordability and strong demand, and positive economic and demographic conditions.

On the other hand, Southern states lost momentum as oil prices tug on regional economies.

"While other factors certainly weigh on housing trends, it's clear that low oil prices are having a negative impact on energy-dependent markets across the country." - Rick Sharga, Auction.com EVP.

He added, "States like Texas–where the economy relies heavily on the extraction, production and transportation of oil–are seeing higher unemployment and a slower rate of home sales and home price appreciation. On the other hand, markets like Orlando are probably experiencing an economic boost from the increased level of travel brought on by lower oil prices."

"After the volatility of the boom and bust cycle that the housing market went through, we're finally seeing market dynamics that reflect more normal trends," said Peter Muoio, Auction.com chief economist. "Metros in the top 10 have strong, underlying economic conditions and favorable potential in the coming years, while those closer to the bottom have housing conditions that suffer from a weaker economic outlook."

Earlier this month, Arch Mortgage Insurance's (MI) Risk Index showed that the average risk of home price declines over the next two years rests at the low-level of 6 percent, except for states that are highly dependent on oil production.

The data revealed that North Dakota had the highest risk of home price decreases at 43 percent, mostly due to the 1.8 percent drop in total employment and lower oil prices. Alaska and Wyoming followed with 35 percent and 36 percent chances, respectively.

In addition, energy-producing states such as Texas (29 percent), Louisiana (27 percent), New Mexico (25 percent), Oklahoma (26 percent), and West Virginia (5 percent) also have higher-than-average risks of price declines.

"Home prices in much of the country should continue to rise faster than inflation in the medium term, due to a shortage of homes for sale or rent, good affordability, and continued job growth of 2 to 3 million net new jobs a year," the report noted. "Most Oil Patch states will experience slower home price growth, but any price declines should be fairly limited in scope. No states received Risk Index scores above 50, the point where home prices are more likely to decline than rise."

Click here to read Auction.com's full report.