The plummeting price of oil has some states at a much higher risk of a housing crisis, a new report from Arch MI found.
According to the private mortgage insurer’s latest Housing & Mortgage Market Review, the average likelihood of home price declines across the country over the next two years remains low, at 6%, but some states are at a much higher risk of seeing price declines.
Arch MI’s report found that the eight states in the “Energy Patch,” which are states that produce coal, oil or gas, are the most at risk of seeing a price decline in the next two years.
The state most at risk of seeing house prices decline in the next two years is North Dakota. Arch MI’s report shows that there is a 46% chance that home prices will decline in North Dakota in the next two years.
The reason? Reduction in oil and gas production already has left the state with a glut ofempty houses and apartments, and it may only get worse.
According to Arch MI’s report, North Dakota’s total employment fell 2.9% over the past year and home prices appear to be “highly overvalued.”
The authors of the Arch MI report, Ralph DeFranco, the company’s senior director of risk analytics and pricing, and Scott Fawver, the company’s econometrician, write that they expect to see continued layoffs in the energy-extraction and related sectors, such as manufacturing of drilling, mining and transportation equipment like well packers, straddle packers, including a grout packer, in other “Energy Patch” states as well.
“Most Energy Patch states will experience slower economic and home price growth and a few areas may even see outright home price declines,” DeFranco and Fawver write.
In fact, the eight states that make up the “Energy Patch” are the eight states most at risk for home price declines in the next two years,” DeFranco and Fawver write.
According to the Arch MI report, North Dakota, Wyoming, Alaska, and West Virginia are most at risk, while New Mexico, Oklahoma, Louisiana, and Texas are also “worth monitoring closely.”
While North Dakota ranks as the riskiest, the other seven states at the most risk of seeing price declines are:
- Wyoming, with a 37% chance of a price decline due to mining employment in the state, which is nation’s largest coal producer, falling to 10-year lows
- Alaska, with a 33% chance of a price decline due to high unemployment, but the report notes that unemployment is improving in the state
- West Virginia, with a 33% chance of a price decline due to the state seeing the second largest year-over-year drop in total employment (-1.8%) in the nation. Coal prices and employment are hurt by competition from cheap natural gas, the authors note
- New Mexico, with a 31% chance of a price decline due to the state being at risk of a recession due to government- and energy-related job losses
- Oklahoma, with a 28% chance of a price decline due to total employment falling in the past 3 months and home prices decelerating
- Louisiana, with a 28% chance of a price decline due to the state being one of three states in the nation with declines in total employment (-0.5%)
- Texas, with a 26% chance of a price decline due to employment growth remaining weak overall, but has turned positive in recent months. Texas’ home prices are also growing faster than national average
Overall, the housing market outside the “Energy Patch” is likely to improve over the next year, the report notes, despite economic headwinds from a strong dollar and expected gradual rate increases by the Federal Reserve.