How will Oil Prices affect Inner Loop home prices?

Since the first drop spewed out of Spindletop, 86 miles east of Downtown, the city of Houston has been an oil town. That beautiful black soup has provided our fair city with a lot of ups and a few notable downs. Despite a much more diverse economy, Houstonians are still a little skittish about the price of oil and whether Oil prices affect Inner Loop home prices and throughout the city. In the past few months, we've seen oil prices (WTI) fall from a peak north of $100 per barrel to settling in around $50 a barrel today.

Will this decline have an impact on home prices? According to Jim Gaines, a research economist with the Texas A&M University Real Estate Center (TAMUREC), its hard to predict without knowing how long they will sustain these levels and how far they will fall. What we do know is where the market stands today in the Inner Loop and also where they have been. Over the past two years, home inventory levels in Houston's Inner Loop have been significantly low. Low inventory levels and the subsequent multiple offer frenzy has been well documented (just check here, here, and here). Inside the Loop, there are currently only 3 months of active single family home inventory.  According to the National Association of Realtors, an inventory level of around 6 months will be balanced between home buyers and sellers. In other words, we still have a ways to go before the inventory levels hit a point where prices begin to pull back. Ted Jones, Stewart Title's chief economist and former Houston Association of Realtors chairman, provides a relatively negative outlook for the housing market.  He forecasts a 10 percent to 12 percent decline in home sales over the next 12 months. However, despite this negative decline the the number of home sales. Mr. Jones still anticipates a 6% increase in home prices in Houston over the coming year. As reported via Twitter on January 7th by the Houston Chronicle's Nancy Sarnoff, Mark Dotzer, Chief Economist at the Real Estate Center at Texas A&M, has similar thoughts:

Dotzour: "There's no chance you're gonna see a generalized price decline w/ houses in Houston even if home sales fall off 50%" — Nancy Sarnoff (@nsarnoff) January 7, 2015

Why are economists predicting stable home prices? Because despite that decline in home sales activity, inventory levels will remain either low or at least relatively balanced. Furthermore, interest rates remain near all time lows, which should help to keep home buyers engaged.