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The way oil prices affect real estate

By Al Twitty | August 3, 2020

This year has so far been one of the worst, yet extremely unique for the global economy. We are witnessing unprecedented, never seen before circumstances. The COVID-19 pandemic truly has been a key factor in the present-day global economic crisis. This was the primary reason why the US crude oil prices broke below the historical minimum of 0 USD. Yes, oil prices went below the positive line and were cheaper than free. But how did this affect different countries and does it have to do anything with real estate? 

As the oil prices started to plummet below zero, the world’s major oil-exporting nations went into a rapid economic shock. The currencies of those nations started to quickly devaluate as a result of the possible fast economic downfall due to the lack of oil export incomes. Such countries were Iran, Russia, and others. 

The case was especially severe for Iran, as the Rial continued to drop with no end in sight as it paired up with the economic shock as well as further US sanctions. A good way out of the depression, for the majority of the population, was to seek different currencies as their daily drivers. This was mostly during the first week of the shock, or a couple of months before it. However, considering that the legality of forex trading in the country is quite convoluted, a lot of Iranians had to rely on identify-masking technology to get through to the FX market. A useful tool, in this case, was a mobile trading platform. It was much easier for a mobile device to mask its presence or change the area of operations compared to a desktop computer. Because of this, a series of trends occurred in the country targeting financial mobile trading via VPN or even generic access to the global markets.

Believable or not, these tactics helped many Iranian retail FX traders to stay on track with the markets as well as take advantage of it, while the country continued to deteriorate.

It is evident that the plummeting oil prices impacted countries and their economies, particularly hitting the financial markets. However, the question is whether it did affect the housing markets. Or, in general, what is the correlation between the oil price shifts and the housing market? One could be thinking that there is nothing that could link the two. Yet, the truth is that there is more to this relationship than we might think. 

Plummeting oil prices affect oil-selling regions and their economies

Oil exporting nations are not the only ones affected by the price shifts. Rather, local communities and regions within nations that are highly dependent on incomes generated by oil exports struggle the most. For instance, Houston in the United States and the entire province of Alberta in Canada are highly reliant on crude oil exports. Some of the world’s largest oil selling corporations are based in these areas. 

With the plunging oil prices, mobility into those areas reduces significantly. This is caused by the major impact oil prices have on local economies and markets. In other words, when the global market price of such an important product drops importantly,  the local economy receives depressing impulses. To simplify this statement, a huge chunk of the local population that is dependent on the oil industry either loses or receives less income than before. As a result, they decide to spend less and maybe even refuse to make major purchases they were supposed to. For instance, if someone in the industry was planning to move into a bigger house, they will postpone the move in case of the oil price change. As a result, the overall economic activity in the region slows down. Fewer people go into the region and invest in real estate, resulting in falling housing prices. 

On the other hand, regions that are dependent on tourism or logistics see major benefits. For instance, if one lives in the area closeby a major airport, they will likely witness an increase in the number of flights, therefore potentially the number of people and cargo arriving. These are what create jobs and incomes in such regions, therefore falling oil prices benefit tourism and logistics reliant areas. 

Cost of goods, therefore the cost of construction 

We sometimes forget how oil-dependent we, as a society are. In modern times, everything from food packaging to phones, other smart devices, and clothing are made off of oil bioproducts. Therefore, as the oil prices plummet, so do the costs of its bioproducts. The construction industry is not an exception. 

The latter uses a lot of products made out of oil. Moreover, construction works are related to the high mobility of trucks and other types of vehicles. Construction materials need to be moved around constantly. Therefore, with reducing oil prices, the overall cost of construction reduces. This often creates instability on the market as frequently shifting oil prices make it difficult for companies to account for their finances. During such turmoil, real estate markets react differently, depending on various factors. Yet, usually, the cost of construction has a minor effect on the cost of the real estate itself. This is caused by the fact that such plunges in the oil price are usually followed by the uprise.

Photo by Ryan De Hamer on Unsplash

  • One comment on “The way oil prices affect real estate”

    1. Yes....!
      I agree with your point.
      Oil prices are a major effect on the real estate industry. The investors invest real estate as much as more while the previous demand for oil is higher than real estate. Millions of dollars are breakout because of oil prices. But in the future and now the situation of worldwide the oil prices are maintained and hope so its increases in very soon.

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