Real Estate

The devaluation of oil and Oklahoma Housing market

A buyer asked me if I thought the price of housing would drop drastically since the price of oil has dropped drastically over  the past year or two. Oklahoma is an oil state and it does affect our economy.

The following is my response.

In the 1980’s, the Oklahoma economy was predominately dictated by what happened in the oil industry. Because of this, when the oil bust came people left Oklahoma in mass groves. The real estate market collapsed because of the exodus. Today, Oklahoma is vastly diversified its economy.  Oklahoma City is home to businesses like Dell, Boeing, paycom, Hobby Lobby, the FAA and Tinker AFB.   While the cost of oil does affect our economy it does not rule it like it did in the 1980’s.

Oklahoma with stood the real estate down turn in 2007 and lost very little in value. Depending on the size and cost of the property as well as the location we saw values remain constant without any appreciation to a few percentage points of devaluation. We never saw the real estate bubble that California did; therefore, we never had the extreme bust either. We did have our share of foreclosures and short sales but that was to be expected.

Today we are seeing moderate increases in value. We did close fewer sales in 2015 than in 2014. In Cleveland county, we sold 4098 homes in 2014 compared to 3996 homes in 2015—less than a 100 fewer homes sold. While the average sales price rose from $175.88K to $180.17K. Fewer homes were offered for sale last year which caused the prices to go up in my opinion. With less inventory we saw prices rise.

What will the next few years bring for Oklahoma?

If oil prices do not rise, I think you will find that people who may have moved will choose to not move–to remain in their current homes until the oil market corrects itself.  If fewer people move, this will cause a continued shortage of inventory thereby holding or increasing property prices.

In my professional opinion I believe we will continue to see growth in our city as employers move to the Midwest seeking lower wages and lower taxes. Regardless of what happens with oil, people are not going to be moving from Oklahoma in mass droves like we saw in the 1980s. More people coming to the state will cause housing to rise especially rents. Rents tend to go up when population fluctuates upward because there is a shortage in housing available. Currently rents are generally more than the cost of a mortgage in a majority of areas.

I also believe the government intends to continue to increase the prime rate (the rate banks are charged) which will cause the interest rates for home loans to go up. The increase in the interest rate can cost a lot more than a slight depreciation in the sales price of a house. If the interest rate increases by only 1%, it will change your principle and interest payment by 10%.

While I do not have a crystal ball, I do not believe that the devaluation of oil is going to cause the prices of homes in Oklahoma to largely fluctuate negatively—due to the fact that we have low unemployment, low cost of living, and new businesses moving into our state.