US energy boom may be long-term positive for real estate
Growing US competitive advantage
This Financial Times article Cheap energy is the new cheap labour highlights the growing competitive advantage of the US over Europe as a result of the shale boom (the US is forecast to become the world’s largest oil producer in 2015.)
Oil price slump hurts country budgets
OPEC decided this week not to cut production as a way of trying to halt the slump in oil prices, down some 30% in recent months to about $70 per barrel.
The slumping oil prices is putting pressure on the budgets of many oil-producing countries. Here is a chart showing the oil price assumed in OPEC countries’ budgets:
Russia is not shown here as it is not a member of OPEC, but its 2015 budget assumes an oil price of $100.
Why is Saudi Arabia happy to see oil prices down?
The OPEC decision was driven by Saudi Arabia. It is futile for an outside to speculate about Saudi’s motivations but factors cited by “experts” include a desire to weaken arch enemies Iran and Russia, and an attempt to slow US shale oil production. As often, Saudi Arabia is looking more long-term than short-term.
Here is an excellent article Oil prices keep plummeting from Reuters.
And the real estate connection?
Like Saudi Arabia I may be taking a long-term view but then real estate is a long-term commitment. Buying a home with a 30 year mortgage, as most people do, is in itself a vote of confidence in the future. And while we are told that the Millennials prefer to rent as it gives them greater flexibility for work, eventually, eventually, most of us want to settle down somewhere, become part of a community, go to school events, etc. We deride that when we are very young and yearn for it when we are not quite so young.
There are those who believe that America’s involvement in the Middle East has been driven by the need to secure oil supplies. What if that need is reduced substantially? What if the US becomes an oil exporter? Consider the impact on the US economy if there is no need to repeat the estimated $4-6 trillion cost of the wars in Iraq and Afghanistan.
And what if the US, having trained many of the world’s brightest, allowed more of then to stay and work here?
It is becoming easier to make out a positive outlook for the US, after years of hearing about “the decline of America.”
And if the outlook is optimistic, with low oil prices and geopolitical factors helping to keep interest rates low, then the outlook for real estate is also positive. Now, what will Putin do?
If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or Andrew.Oliver@SothebysRealty.com.
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty
Affiliates LLC. Each Office Is Independently Owned and Operated
You can REGISTER to receive email alerts of new posts on the right hand side of the home page at www.OliverReports.com.
@OliverReports