The Effect of Oil Prices on Real Estate

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As housing starts showing improvement, a new worry has crept in: can the dip in oil prices impact the recovering real estate market? At $30 per barrel, oil costs are the lowest they have been in almost 12 years and this could mean that gas prices will soon show a decline too, which will be favorable for millions of drivers across the nation. But is there a negative impact on the housing market?

According to ProTeck Valuation Services, the nation had 1,882 active oil rigs in December 2014. This dropped to 714 by the end of 2015; the decline was more noticeable in Texas, with a 62 percent reduction. Big oil companies have announced mass layoffs and the impact is being felt by service companies providing housing, insurance, fracking material and steel for pipelines and rigs.

The mass layoffs have impacted real estate markets in and around major oil production sites. Data from the Home Value Forecast for Texas affirms that foreclosures have increased by as much as 40 percent since 2014 in areas like Midland where 25 percent of men are or were employed in mining, oil extraction or quarrying. Many areas of Texas also make up the Home Value Forecast’s negatively impacted Core Based Statistical Areas (CBSAs) and show drastic drop in sales and hikes in foreclosure rates.

Dissimilarly, this crisis has not affected other parts of the nation that have shown positive growth in real estate. These include CBSAs in California, Utah, Oregon and Washington. Specific areas in these states, including Boise City, Eugene, Vallejo-Fairfield and Salt Lake City have shown an increase in home sales and active prices and a drop in foreclosures, which point towards a recovering market.

The crisis in Texas is dependent on several factors which may or may not be duplicated in other states. However, for areas rich in oil like California, Oklahoma and New Mexico, a continuous decrease in oil prices is always a two-way street.

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