Oil prices hit $50 a barrel last week for the first time in seven months. Prices have dropped again, and a recent report from the Federal Reserve Bank of Dallas wonders if falling oil prices will lead to bust in house prices.
Housing prices are affected by energy prices in production-heavy states like Texas, but the latest S&P/Case-Shiller Home Price Index shows housing prices in Dallas rose almost two percent in the last month.
John Duca is Vice President and Associate Director of Research at the Federal Reserve Bank of Dallas. He says North Texas has weathered the storm well, but other factors could hurt the local housing market.
Interview Highlights: John Duca…
…On why this housing cycle has been unusual:
“The construction is much more muted. So typically, housing demand would pick up, prices of existing homes would pick up, and that would give an incentive to build new homes.
This time around, people are much more cautious for several reasons. One is bankers have to have much
more capital at stake in order to make a loan to a developer. In addition, I think localities are a little more careful about approving plats very quickly because they’re concerned about overbuilding.
I think for Dallas, the Baby Boomers are getting older. There’s an increased demand to live closer in. The millennials have a liking for the urban life. I think we’re going to see perhaps a concentration of housing demand and house prices than we normally would see, rather than massive expansion into the suburbs.”
…On how rising housing costs have hurt younger people:
“The recession was relatively mild in Texas, but nevertheless, the Great Recession really hurt our younger people disproportionately. So the people who would be associated with renting first and then buying homes are delaying home purchases.
We also saw a rise in the share of young people who live with their parents. A lot of young people are having a hard time affording the rents. The good news is the job market has firmed in many ways.”
…On how falling oil prices have hurt Fort Worth:
“Job growth has slowed dramatically on the Fort Worth side of the Metroplex. What I think will happen is we may not see the same kind of growth [in Dallas] going forward in Fort Worth, we may see pauses for a while.”
….On what would hurt the Texas economy:
“I think the national economy is much more important. I think most economists see the U.S. economy doing well this year and next year.”