The decline in oil prices may be detrimental to some real estate markets in the sense that it can pull down home values.
At first, one can say cheaper oil is a good thing, but it can have a negative effect on home values. According to CNN Money, falling oil prices is not good for states that are dependent on oil production as a main source of revenue. Aside from the fact that these oil-producing states will be seeing fewer returns, declining oil prices can result to layoffs in these markets. In such scenario, people will not be able to afford new homes. Therefore, the decrease in oil prices can lead to a decrease in housing demand on markets that are tied to oil production and when demand is low, home prices go down.
With regards to the effect of falling oil prices, chief economist at the National Association of Realtors, Lawrence Yun, could not agree more. He said, "Fewer jobs means less home buying demand and that will naturally soften the housing markets in those job-impacted areas."
Everywhere else in the country, home prices are anticipated to increase by around 3.5 percent this year. This is due to the fact that in other markets tight supply is the main force that is affecting the prices. In oil-dependent markets, the decrease in oil prices could slow down demand causing it to catch up with supply, eventually. Therefore, the oil-producing markets can expect home values to depreciate as oil prices go down.
According to CNN Money, North Dakota is on the verge of seeing low home prices as the price of oil continues to plunge. The experts say that the state's recent oil boom also lead to housing boom because it generated jobs that attracted a lot of people. With the oil prices dwindling in the last 12 years, what is happening now is the opposite. According to Ralph DeFranco, senior director of risk analytics and pricing at Arch Mortgage Insurance Company, "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."
