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Drilling Down: The Impact of Oil Price Shocks on Housing Prices

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Abstract

This paper investigates the impact of oil price shocks on house prices in the largest urban centers in Texas. We model their dynamic relationship taking into account demand- and supply-side housing fundamentals (personal disposable income per capita, long-term interest rates and rural land prices) as well as their varying dependence on oil activity. We show the following: 1) Oil price shocks have limited pass-through to house prices?the highest pass-through is found among the most oil-dependent cities where, after 20 quarters, the cumulative response of house prices is 21 percent of the cumulative effect on oil prices. Still, among less oil-dependent urban areas, the house price response to a one standard deviation oil price shock is economically significant and comparable in magnitude to the response to a one standard deviation income shock. 2) Omitting oil prices when looking at housing markets in oil-producing areas biases empirical inferences by substantially overestimating the effect of income shocks on house prices. 3) The empirical relationship linking oil price fluctuations to house prices has remained largely stable over time, in spite of the significant changes in Texas? oil sector with the onset of the shale revolution in the 2000s.

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  • Valerie Grossman & Enrique Martínez García & Yongzhi Sun & Luis Torres, 2019. "Drilling Down: The Impact of Oil Price Shocks on Housing Prices," Globalization Institute Working Papers 369, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:369
    DOI: 10.24149/gwp369
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    1. Clapp, John M & Rodriguez, Mauricio & Pace, R Kelley, 2001. "Residential Land Values and the Decentralization of Jobs," The Journal of Real Estate Finance and Economics, Springer, vol. 22(1), pages 43-61, January.
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    7. Marius Claudy and Claus Michelsen, 2016. "Housing Market Fundamentals, Housing Quality and Energy Consumption: Evidence from Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
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    1. Nguyen, Thi Thu Ha & Naeem, Muhammad Abubakr & Balli, Faruk & Balli, Hatice Ozer & Syed, Iqbal, 2021. "Information transmission between oil and housing markets," Energy Economics, Elsevier, vol. 95(C).
    2. Sheng, Xin & Marfatia, Hardik A. & Gupta, Rangan & Ji, Qiang, 2021. "House price synchronization across the US states: The role of structural oil shocks," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).
    3. Ekinci, Mehmet Fatih & Omay, Tolga, 2020. "Current account and credit growth: The role of household credit and financial depth," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    4. Fennee Chong, 2023. "Housing Price and Interest Rate Hike: A Tale of Five Cities in Australia," JRFM, MDPI, vol. 16(2), pages 1-13, January.
    5. Gupta, Rangan & Sheng, Xin & van Eyden, Reneé & Wohar, Mark E., 2021. "The impact of disaggregated oil shocks on state-level real housing returns of the United States: The role of oil dependence," Finance Research Letters, Elsevier, vol. 43(C).
    6. Jin, Yi & Liu, Sinuo & Sun, Yongping & Fang, Jie, 2024. "Energy transition and housing market bubbles: Evidence from prefecture cities in China," Energy Economics, Elsevier, vol. 133(C).
    7. Nyakundi M. Michieka & Richard S. Gearhart & Noha A. Razek, 2024. "Oil Price Dynamics and Housing Demand in Oil Producing Counties in the U.S," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(2), pages 483-512, June.

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    More about this item

    Keywords

    real house prices; real rural land prices; panel VAR model with exogenous variables; real oil price shocks; (non-oil) real income shocks;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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