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Home Value Forecast: Industrial Diversity Helps Keep Home Prices Stable

Many people have been writing about the impact of lower oil prices on real estate. Brad Doremus and Victor Calanog wrote an informative piece in National Real Estate Investor on February 25, 2015 that does a fine job painting the picture. You can read it here.

In the story, they outline the impact of falling oil prices on major oil-producing and research hubs, including areas in Texas and Colorado. This is of interest to Home Value Forecast because four of our top ten metros this month are from oil producing/exploration areas in the two states.

They conclude by saying about Houston: “…the consequences of lower energy prices will mostly be felt by office and industrial properties. Any effect on the multifamily and retail sectors will be felt indirectly, but we believe neither will feel any significant downward pressure on fundamentals.”

What’s the reason for this stability? Industrial-based diversity. Below is a look at Houston home prices versus crude oil over the last forty years:

Houston-housing-market-vs-crude-oil-price

The 1980s’ decline in crude prices had a direct and significant impact on home prices in Houston. At that time, Houston’s economy was overly dependent on the energy sector. Diversification in the industrial-base has left Houston better equipped to meet the challenges of a prolonged downturn in oil prices.

In a June 2014 Home Value Forecast update we touched on many Houston real estate market trends, including a Collateral Analytics Home Price Forecast. Even with the changes we’ve seen over the last year, the forecast is staying fairly consistent:

houston-housing-forecast

Based on previous patterns, it will be important to monitor how Houston prices perform over the coming year in light of the recent significant decline in oil prices.

The College Station and San Antonio CBSAs were also in our top ten, and have seen impressive appreciation over the last ten years, with neither seeing any significant impact from the 2008-2011 real estate downturn. We will keep an eye on these markets in future months to see how they weather future oil price fluctuations.

Collateral Analytics Home Price Forecast for College Station and San Antonio CBSAs:

college-station-san-antonio-housing-forecast

CBSA Winners and Losers

Each month, Home Value Forecast uses a number of leading real estate market-based indicators to rank the single-family home markets in the top 200 CBSAs to highlight the strongest and weakest metros.

The ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for that series. For example, a declining trend in active listings would be positive, as will be an increasing trend in average price. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. From the universe of the top 200 CBSAs, we highlight each month the CBSAs which have the highest and lowest composite scores.

The tables below show the individual market indicators that are being used to rank the CBSAs, along with the most recent values and the percent changes. We have color coded each of the indicators to help visualize whether it is moving in a positive (green) or negative (red) direction.

Top 10:

February-2015-top-housing-markets

In addition to the Texas and Colorado markets, California and Washington state metros are again in the HVF top ten this month. The California and Washington markets all have higher sold prices over active home prices, with San Francisco leading the pack with average sold price of $989,000 over $878,000 active sales price.

All have had significant drops in active listings and Months of Remaining Inventory (MRI) and look like they will be “sellers markets” going into the spring.

Bottom 10:

February-2015-bottom-housing-markets

The bottom ten are still plagued by the downward pressure of foreclosure sales, including Akron, OH with 44.88 percent foreclosure as a percentage of market sales. Months of Remaining Inventory fluctuate between 6 and 13 months for the bottom ten, much less than during the height of the housing crisis but far greater than the 2 – 3 that is the majority in the top ten.