Drilling Down: The Impact of Oil Price Shocks on Housing Prices

Valerie Grossman, Enrique Martínez García (), Yongzhi Sun and Luis Torres
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Luis Torres: https://www.dallasfed.org/research/economists/torres.aspx

No 369, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

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 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 (search for similar items in EconPapers)
JEL-codes: C33 O18 Q43 R14 R3 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-10-04
New Economics Papers: this item is included in nep-ene, nep-ore and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Drilling Down: The Impact of Oil Price Shocks on Housing Prices (2019)
Journal Article: Drilling Down: The Impact of Oil Price Shocks on Housing Prices (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:369

DOI: 10.24149/gwp369

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