Rising Oil, Rising Rates? Here’s What Homebuyers Need to Know

Rising Oil, Rising Rates? Here’s What Homebuyers Need to Know

With the cost of oil nearly doubling before falling to $88.94 as of April 14, we need to start talking about what this means for the average person and the housing market. You may be asking what the price of oil has to do with the price of homes or how this can affect buying or selling a house. 

Let’s start by understanding how important oil is to the world of goods around us - oil is everywhere - from the asphalt in shingles to the trucks that deliver food and other goods, and that makes it extremely valuable and a necessary part of any society. This is why when oil prices rise it’s natural for other goods and services to follow suit, and follow they have. 

How is oil able to sway so many different industries? The simple answer is that because it’s so valuable and non-renewable it is often seen as a necessity and becomes something of a basis when understanding inflation patterns. As oil prices rise this makes the CPI increase too, and this is exactly what the Federal Reserve watches to try and maintain a healthy economy. 

What This Means for the Housing Market

While the Federal Reserve does not directly set the mortgage rate, how it is set is tied to the yield of the 10-year U.S. Treasury. As inflation rises the buying power decreases, and many costs related to inflation are often passed to consumers via raised prices. When inflation rises, the Federal Reserve often increases interest rates to slow spending and stabilize prices. Those changes ripple through financial markets and typically lead to higher borrowing costs. 

As investors demand higher returns to keep up with inflation, bond yields rise — and mortgage rates tend to follow, as such the mortgage rate went from just under 6% up to 6.3% in the past two weeks alone. Circling back to talk about how often oil is used, you also have to look at the fact that tons of items are derived from oil — like insulation for homes and refrigerators, flooring, and plastic casings at the very least. However, oil is also relevant when discussing the cost of natural gas, a resource that many Americans use to keep their homes heated. 

What Does This Mean Locally?

Here in Texas, oil is one of the largest economic drivers we have — especially in West Texas communities like Odessa and Midland. As oil prices go up and oil reserves go down the oil business will begin to boom here and especially in Odessa and surrounding towns. Higher oil prices often lead to increased drilling activity, which brings more jobs and higher wages. When that happens, more people move into the area — and housing demand typically follows. 

What This Means for Buyers and Sellers

So what does all of this mean if you're thinking about buying or selling a home? Rising oil prices can create a mixed impact on the housing market. On one hand, higher inflation can lead to higher mortgage rates, which may reduce affordability for some buyers. On the other hand, stronger oil activity can boost local job growth and population movement — both of which increase housing demand. In markets tied closely to energy, like much of West Texas, housing trends often follow the oil cycle. When oil is strong, demand for homes typically increases, and though the mortgage rates may continue to rise it’s still early spring, when demand for homes is already reaching its peak. 

Just remember that there’s no perfect time to buy or sell — only when you’re ready and have all the resources to make the big move — and knowing what all factors come into play is definitely a necessity.