Boomer’s Blog

Black gold is making real estate investment king in states that produce energy by fueling prices in dozens of local U.S. housing markets.

Today, the price of crude oil topped $135 per barrel, up from $65 this time last year, and experts are predicting that the price is likely to reach $200 before too long. While difficult for most of the world to swallow, these prices are producing a boom in some U.S. housing markets, while others languish in an ongoing struggle for economic survival.

Because soaring oil prices result in higher consumer costs for gas, energy bills and food, local economies in many housing markets still reeling from the foreclosure epidemic are suffering from lower tax revenues and other harsh realities. Once-thriving infrastructures appear to be fizzling out in many of the markets that saw the greatest gains during the housing boom.

Give and Take
At the same time, high fuel costs are driving hot housing markets in many energy-producing states. In these real estate markets, high gas prices are stimulating job growth, boosting personal income, contributing to a healthy tax base and rising demands for housing.

The Wall Street Journal reports that five states producing oil, gas and other fossil fuel commodities are beating April’s national unemployment rate of 5 percent and personal income growth of 5.9 percent by significant margins. Here are the numbers from some of the hottest energy producing states for the sake of comparison to the overall national average:

Montana

• Unemployment rate: 3.8 percent;
• Personal income growth: 6.6 percent.

North Dakota

• Unemployment rate: 3.1 percent;
• Personal income growth: 6.4 percent.

Oklahoma

• Unemployment rate: 3.2 percent;
• Personal income growth: 7.0 percent.

Texas

• Unemployment rate: 4.1 percent;
• Personal income growth: 7.4 percent.

Wyoming

• Unemployment rate: 2.6 percent;
• Personal income growth: 6.8 percent.

Since many of these states never experienced the real estate price surges that came with the housing boom, they’re not being ravaged hit by the bust. This may factor significantly into long-term real estate investment stability as the overall U.S. economy struggles to overcome recession, lost revenues and other related economic pangs.

Shelter from Recession’s Storm
Because energy producing states currently are boasting more robust tax revenues, public infrastructures are thriving: schools, hospitals parks and law enforcement are well-funded, roads are better maintained and additional funding is available for the improvements that contribute greatly to property value increases.

These factors all work together to improve the quality-of-life assets that attract qualified buyers for home relocation and up-sizing. When such conditions are in place, they also stimulate the service industry and retail sectors, prompting them to expand their presence, poised to join the party.

Nature Takes her Course
In energy booming states, especially those that smartly diversified their economies during former energy market declines to minimize their economic dependance on oil prices, these indicators offer real estate entrepreneurs broader investment options than many other markets. Currently, they’re generating demand for many different types of housing: rental properties, low-income housing, single family homes and retirement communities, to name a few. When favorable market conditions spark demand, the nature of capitalism takes its course.

Boom and Bust Economy
In the past, real estate markets in energy-producing states were vulnerable to the boom and bust economic cycle. When energy prices would surge, local economies would quickly grow, only to be subjected to painful busts when energy prices inevitably declined. Today however, analysts are saying that we may never again see dramatic declines in oil prices. So as long as the supplies hold out, and local economies strike a healthy balance, these markets look like promising investment opportunities. Savvy real estate entrepreneurs may want to take a look at what some of the up-and-coming markets in energy producing states have to offer their portfolios.

As home sales and prices drop across much of the United States, many sellers are resorting to fire-sale pricing and bargain hunters are seizing the hot real estate investment opportunities.

The national median home price dropped to $195,900 in February, down from $213,500 for the same period in 2007, acording to RealtyTrac. In the meantime, cities in three of the five states with the nation’s highest total foreclosure rates top CNNMoney.com’s rankings of the best places to invest in housing.

Georgia’s Atlanta Area

• Georgia’s total of 11,047 foreclosures fuels the nation’s fourth-highest overall foreclosure rate, says RealtyTrac. One in every 351 Georgia households received a foreclosure filing in March — ranking its foreclosure rate No. 6 in the nation.
• According to CNNMoney.com, rampant home building in the Atlanta area has stalled, which should start to reduce the area’s large supply of vacant housing and propel prices upward.

Ohio’s Cincinnati and Cleveland Areas

• RealtyTrac’s most recent report says that Ohio’s total of 11,273 foreclosures give the state the third highest foreclosure rate in the U.S.
• One in every 448 Ohio households received a foreclosure filing in March — earning a seventh place spot in total foreclosures rankings by state.

CNNMoney.com ranks these cities as the third and fourth best places to buy houses in today’s market, forecasting that:

• Cincinnatti’s manufacturing-heavy economy should rise as the dollar falls: Commercial construction and high-end developments are on the rise.
• Cleveland’s foreclosure boom seems to be slowing, thanks to programs to help troubled borrowers. Prices have stabilized and appear poised to rise.

Michigan’s Detroit Area

• In February, RealtyTrac reported that Detroit had nearly 5 percent of the city’s households were entering some stage of foreclosure, at a rate 4.8 times the national average.
• With an average price-to-rent (P/R) ratio of 15, a buyer theoretically annually gains almost 7 percent of the purchase, CNNMoney.com reports. The average P/R ratio for Detroit’s 30 biggest markets: 23.

Texas’ Houston Area

• Texas’ foreclosure filings were reported on 10,700 properties in March, marking a 13 percent decrease from the previous month and a 16 percent drop from foreclosures reported for the same period in 2007, RealtyTrac reports. In February, a decline in the state’s foreclosures dropped Texas to the fifth place spot for total foreclosures among the states.
• In Houston, soaring oil prices will support and help to stabilize real estate prices. In Q4 2007, prices here were up 1.4 percent — the fastest of all the metro areas CNNMoney.com analyzed.