House Price Declines May Be In Store for Some Oil-Producing States: A Repeat of the 1980s?

With oil prices continuing to fall over the past month, the notion of "lower prices for longer" is increasingly becoming the consensus view. As a result, the prospect of an oil bust draws comparisons to the past slump of the 1980s. While most Americans enjoyed lower gasoline prices over that period, severe employment losses occurred within the oil industry, and many oil-producing states experienced general economic slowdowns and declining house prices. Is the situation today going to be a repeat of the 1980s?

This new edition of Housing Insights from Fannie Mae's Economic & Strategic Research (ESR) Group projects cumulative five-year (2014-2019) house price growth "drags" caused by this past year’s oil price decline for 10 oil-producing states. The analysis utilizes the historical 1980s relationship between oil prices, employment, and house price growth. How states' economies have changed over the years and how the "fracking" revolution in the oil industry could respond to the price decline is analyzed and discussed.

Using a path for oil prices that is generally consistent with the current oil futures price curve, the analysis concludes that negative house price effects should generally be less than what occurred in the 1980s. Still, a number of states—including North Dakota, Wyoming, and Alaska—are found to be at risk of experiencing significant house price declines, while other states likely should expect weaker growth. Furthermore, an increased level of uncertainty remains around the viability of new fracking techniques. How resilient these new production methods prove to be to potentially persistent low oil prices could have a large effect on what ultimately happens to house price growth in these oil-producing states. Lastly, the analysis presents what is being observed in these states thus far and offers leading indicators that can hint at future slowdowns in house price growth.

To learn more about these findings, read our latest Housing Insights.

Eric Brescia
Economist
Economic and Strategic Research Group

August 28, 2015

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.