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Crashing Oil Prices Lead to Real Estate Bargains

An Easy Way to Profit from Crashing Oil Prices

Written by Paul Benson
Posted February 17, 2015

They're back...

Low oil prices are here!

We know what this means for home and car owners: lower bills and bigger savings.

But it's also affecting the real estate market.

You see, from 1980 to present day, the year-over-year trends in oil prices, jobs, and home prices have consistently followed a pattern. In oil-producing markets, home prices tend to follow oil prices, but with a lag.

With that said, let’s look at how low oil prices are affecting U.S. jobs and real estate.

Shrinkage

Jed Kolko, CEO of Trulia, has found that the effect of oil on the market depends on how much a region relies on the oil and gas industry for employment.

In areas where the industry is prevalent, a drop in oil prices can lead to a corresponding drop in home values. For example, Texas, Montana, and North Dakota are predominately oil- and gas-focused regions. If oil prices are declining, the need for employment also declines.

In places like Texas, where much of the economy is based on the sale of oil, there has been a trickle-down effect from the recent record-low oil prices. This doesn’t just affect the big oil rigs — it also affects the companies selling the oil, attorneys, accountants, and so forth. Without this income going into all of these pockets, there is less money overall being spent in these regions, causing economic shrinkage.

In other areas, the opposite holds true.

While home prices and oil prices move in the same direction in oil-producing markets, they tend to move in the opposite direction in other markets.

Cheaper oil lowers the costs of driving, heating a home, and other activities, boosting local economies outside of oil-producing regions.

The Midwest and Northeast regions stand to benefit the most from sliding oil prices. Cheaper oil prices are gracing homeowners with higher home values. The less consumers spend on heating bills and vehicle operations, the more money they're putting in their pockets.

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Bargain Hunting

While the value of real estate in these areas is increasing, it's not increasing at a rapid rate.

The drop in oil prices has led to an overall slowdown in home price increases throughout the nation. Asking prices for real estate rose 9.5% in December of 2013, and the month-over-month increase in December of 2014 was down 0.5% after large gains in the three months prior.

According to analyst Ruth Mantell, this overall slowdown in price growth is due in part to an increasing inventory, as more people have listed their homes since the end of 2013. The annual price growth has not risen by 10% or higher since March of 2014.

Like I mentioned before, in areas with fewer oil and gas jobs, the main benefit of falling oil prices is the increase in household incomes. Trey Garrison, writer for House Wire, says this trend might spur a decrease in mortgage rates to make homeownership more affordable to more people.

We do know this trend won’t last forever, so how do we prepare for the next step? How will this affect you?

This, of course, depends on the part of the country in which you reside.

If you live in an area where you're benefiting from this decrease, prepare for a slight hiccup.

However, that also means now is a great time to buy. Since many indicators are saying oil is about to go back up, for those of you in Texas and North Dakota, it might just be the perfect time to go bargain hunting.

Until next time,

Paul Benson Signature

Paul Benson

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