1. Drilling Down: The Impact of Oil Price Shocks on Housing Prices
- Author
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Grossman, Valerie, Martinez-Garcia, Enrique, Torres, Luis Bernardo, and Sun, Yongzhi
- Subjects
Texas -- Natural resources -- Economic aspects ,Oil well drilling -- Location ,Supply shocks -- Economic aspects ,Dwellings -- Prices and rates -- Economic aspects ,Housing -- Prices and rates -- Economic aspects ,Petroleum -- Prices and rates -- Economic aspects ,Company pricing policy ,Business ,Economics ,Petroleum, energy and mining industries - 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 the Texas' oil sector with the onset of the shale revolution in the 2000s. Keywords: Real house prices, Real rural land prices, Panel VAR model with exogenous variables, Real oil price shocks, (Non-oil) real income shocks, 1. INTRODUCTION Texas accounts for a large share of total fossil fuel extraction in the U.S. and is a major oil production center globally. While Texas has a large, highly [...]
- Published
- 2019
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