Photo: Paul Lowry/Flickr
North of the border, lower oil prices are taking a toll on some housing markets around the tar sands as the energy sector sheds jobs, leading to declining real estate values, and a similar scenario could play out across a number of US markets over the next couple of years, a recent report suggests.
In Arch MI’s latest Housing & Mortgage Market Review, the lending-insurance firm looked at how factors ranging from oil prices to home construction could impact dwelling prices across the US and rated each state using its risk index.
The index is an estimate of what the chances are of home prices in a market being lower in two years, multiplied by 100. Some of the statistics index calculations are based on include migration, affordability, unemployment, and mortgage delinquencies.
Going off Arch MI’s report and index, a vast majority of states face just a minimal risk of lower residential real estate pricing. “The average likelihood of home price declines across the United States over the next two years remains low,” said Arch MI, estimating a six percent chance.
But not all states were deemed equal. The organization identified eight energy-patch markets, defined facing heightened risks: North Dakota, Wyoming, Alaska, West Virginia, New Mexico, Oklahoma, Louisiana and Texas.
Chart: Arch MI
“Most Energy Patch states will experience slower economic and home price growth and a few areas may even see outright home price declines,” said Arch MI in the report.
With an index of 46, North Dakota is the most likely state to face a drop in prices in the near future, according to Arch MI, which highlighted North Dakota’s total employment rate is down 2.9 percent over last year. North Dakota “home prices appear to be highly overvalued,” Arch MI added.
Texas was the least risky of the eight markets singled out, though Arch MI expects performance in local markets within the states to vary. Large urban centres with strength other industries such as tech and healthcare should outperform small more isolated oil towns.
“The full impact of the drop in energy prices has yet to be felt,” said Arch MI in the report. “We expect weak economic conditions to continue since there are additional layoffs to come,” the mortgage backer added.
These jobs won’t all be directly tied to oil, Arch MI said. Illustrating the trickle down effect the massive segment has, it explained how a struggling oil industry not only means private losses, but less tax revenue for governments — and subsequently small payrolls.
Compounding the problem is the possibility of Iran intensifying its oil production. Now that its trade sanctions with the US and EU have been lifted, increased supply flowing from Iran could put further downward pressure on prices.