Will The Weak Oil Industry Raise Real Estate Prices?

The oil industry has seem to have hit the rock bottom in many decades with many oil companies going bankrupt, and about a quarter of million workers losing their job. Demand for oil has seen a downfall globally due to many reasons, which include weak demand because of political uncertainty in some countries like Nigeria; and weak demand from Europe and developing countries, which are experiencing low economic growth.

Many oil producers have lowered their investment towards exploring more oil reserves because demand is weak in many countries, though demand is still high in the United States.

Even though petrol and diesel prices rose moderately in India, two weeks ago, globally, prices have been falling in 2016. This is true in India, too. Even though prices have moderately risen in the recent past, adjusting for inflation, petroleum prices in India have been falling for many years. But, according to Goldman Sachs, oil supply, too, is likely to fall drastically from the second quarter of 2016 onward.

What is happening? In fact, the demand for oil has been on a rise from 2010 onward. But hydraulic fracturing and horizontal oil drilling techniques sharply increased the production of oil. When supply rose and exceeded demand, a crash was inevitable. Now, many oil companies are no longer able to make profits. Banks are seeing defaults, because the banking system had pumped more money into the oil industry, hoping that will be the next big thing. Only a drop in supply will change things.

What are the implications for the housing sector if supply does not fall much, prices remaining low for long? Car ownership will rise. People would be far more willing to drive to work. Labour mobility will rise, with people being free to live farther from workplace. Real estate prices would fall because the radius of cities will expand? Why? When people could afford to live far from their office, they would have a wider number of jobs to pick from. They would have a wider range of houses and neighbourhoods to choose from, too. Thus, compelling developers and sellers to cut prices.