January 13, 2016

How Falling Oil Prices Can Hurt the Housing Market In Certain States

oilpricescouldhurthousingmarkets2Falling oil prices might be good for your gas tank, but for your home’s value … maybe not so much.

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.

Falling energy prices are good news and bad news for housing markets. On one hand, lower energy prices keep more money in people’s pockets and increase spending power. But for states with economies tied to the energy sector, lower oil, gas and coal prices can bring layoffs, belt-tightening and less demand for housing.

“Fewer jobs means less home buying demand and that will naturally soften the housing markets in those job-impacted areas,” said Lawrence Yun, chief economist at the National Association of Realtors.
Tight inventory has been plaguing many markets and propping up prices. But if demand slows and supply catches up, price increases might finally slow down … or even stop.

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North Dakota is the most at risk for falling home prices, according to experts. The state’s most recent oil rush led to a housing boom as people poured in looking for jobs. But now, as oil prices sit near 12-year lows, the boom could be fading along with job opportunities.

“The jobs are leaving, and if an area gets depopulated, they can’t take the houses with them and that’s dangerous for the housing market,” said Ralph DeFranco, senior director of risk analytics and pricing at Arch Mortgage Insurance Company.

Now, home prices in North Dakota are 20% overvalued, according to a report from Arch MI, with a 46% chance they’ll decline 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 also identified Wyoming, West Virginia and Alaska as facing the biggest risks of falling home prices.

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