Oil Prices and the Real Estate Market in Wyoming
Everyone in Wyoming is affected by the oil market.
The effect of oil prices on real estate prices is undeniable. We are definitely in one of the deepest downturns of the oil industry since the ’90s. Let’s go over oil basics and then apply it to our market.
It is important to note that oil is a strong indicator of home price trends, but it is just one factor of many. Wyoming learned from ‘80s that the boom and bust cycle is brutal and we are fortunate as a state to have watch guard’s in place to maintain a more controlled market than I see nationally.
What is the current price of oil?
The American benchmark was at around $27 a barrel on 1/20/16, same for Brent crude.
Why has the price of oil been dropping so fast? Why now?
The simplest answer is production is higher than demand. However, many national interests are at play and it can be a controversial subject. All politics aside, it comes down to simple economics where production is still high and the demand hasn’t caught up. In 1996, world oil production was about 63 million a day and it is now at about 80 million barrels a day. Demand hasn’t followed the same increase so prices are affected adversely.
How bad is it out there? When are oil prices likely to recover?
Prices are down about 60% since June 2014. An estimated 250,000 workers lost their jobs. Benchmark companies have decommissioned up to two-thirds of their rigs and exploration budgets have been slashed.
General consensus is that it will be years before oil is back up $90-100/barrel. Oil prices are not likely come back up that high anytime soon. Oil production is not declining fast enough across the United States and other countries so there will still be a surplus. Historically the cycle varies greatly and in Wyoming, four to six years from peak to peak seems to be consistent.
How do the low oil prices affect OUR market?
Low oil means higher unemployment, voluntary reduction in hours or pay and, frankly, lower real estate prices in general. Home prices are trending down with location being one of the biggest factors. Ask me about your area and I will provide your trend and estimated home value. Most neighborhood values are running about 3% lower than 6 months ago but some areas are much worse.
Oil field families have been hit hard with both job loss and decreasing home values and we hope they can persevere. We work hard for our clients to preserve their financial well being. We follow the teachings of Dave Ramsey and try to sell in historically strong resale districts. This means that even in hard times, current owners have the options to heavily trim a household budget, have a safety net of equity so there is room to sell or even rent to cover payments.
Unfortunately, it does mean an increase in foreclosures and loan modifications. If you need help starting the process modify or refinance your mortgage, just ask.
However, I see every market as room for opportunity. Down-trending markets are great for buyers since buying at low cost with low rates then holding the home until prices go back up is a REAL opportunity out there today. I see a lot of ‘get me out’ pricing that has nothing to do with the value of the home and everything to do with the owner’s need to get out of another payment. Loan rates are still around 4% or below–historically very low.
When you couple motivated sellers, lower prices, and great rates– a savvy buyer can wait out the cycle and truly come out ahead. This also applies to those buyers looking to move up because the price hit on their lower priced home will be less than the savings on a higher priced home. (Think 3% of $150k vs. $250k) Meaning you can sell for less and still may come out ahead purchasing a more expensive home.
If you have any questions or comments on oil and real estate, I’d love to hear from you.