Will oil glut drive U.S. home prices down?

In the 1980s, falling oil prices contributed to tumbling home prices in oil-producing U.S. states. However, the effects of the current drop in oil prices shouldn’t be as severe, according to a new report by Fannie Mae.

“The prospect of an oil bust draws comparisons to the past slump of the 1980s,” wrote Fannie Mae economist Eric Brescia. “While most Americans enjoyed lower gasoline prices over that period, severe employment losses occurred within the oil industry, and many oil-producing states experienced general economic slowdowns and declining housing prices.”

While Fannie’s latest Housing Insights report projects a five-year drag on home price appreciation for oil-producing states, it also took into account how the states economies have changed since the 1980s and how the “fracking” revolution in the oil industry could respond to price drops.

The study concludes that falling oil should have generally less severe effects on housing prices than it did in the 1980s. even so, a number of states – including North Dakota, Alaska and Wyoming – could experience significant home price declines, while other states could see weaker price growth, the report found.

“Furthermore, an increased level of uncertainty remains around the viability of the new fracking techniques,” Brescia wrote. “How resilient these new production methods prove to be to potentially persistent low oil prices could have a large effect on what ultimately happens to house price growth in these oil-producing states.”

MPA