How Does the Increase in Crude Oil Prices Affect Real Estate Prices?

The importance of crude oil price on the global economy is very vital. It is considered as one of the main driving forces of the global economy. Therefore, an increase in the price of crude oil inevitably affects the global economy and the real estate sector is not out of it. Crude oil price directly influences transport cost as well as cost of various petrochemical products.

Therefore, it is very much evident that if the crude oil price increases then it will surely affect the price of various real estate properties. It is witnessed that with the increase of crude oil prices the price of real estate properties also increase.

The pandemic Covid 19 already negatively impacted the real estate sector and now there is Russian invasion in Ukraine.

The invasion of Russia in Ukraine caused the increase of crude oil price quite high and this also affects the real estate price. Observing the present situation of Russian invasion in Ukraine in the present blog we are going to discuss a very important issue on how the increase in crude oil prices affects the real estate prices.

Impact of the Increase in Crude Oil Price on Real Estate

Crude oil price influences the transport cost and in this way it increases the prices of steel, cement and various other real estate components. In a number of ways the prices of real estate affects real estate, such as

1. Increase the transport cost: The increase of the price of crude oil also increases the price of fuels like petrol, diesel, etc. and hence increases the transport cost. The increase in transport cost also increases the price of steel, cement, brick, sand, etc. and hence increases the overall price of real estate.
2. Increase production cost of various real estate components: The increase in the price of crude oil also increases the production cost of various components of real estate and hence increases the price of real estate.
3. Increase the mortgage rates: The increase in the price of crude oil also promotes inflation and in this way it increases the mortgage rates. The increase in mortgage rate positively increases the price of real estate.
4. Lower down the chance of loan approval: When the price of crude oil increases the market experiences a high rate of inflation and in this situation various lending agencies are less likely to approve loans for real estate. 
5. Decrease the consumer demand: When the crude oil price increases the overall price of real estate also increases and hence the consumer demand for various real estate properties decreases.  
6. Increase volatility in the market: The crude oil price highly influences the global economy and hence the increase of crude oil price increases the overall volatility of the market and the real estate sector is not the exception.
7. Increase risk in investment: If the price of crude oil increases then in this situation it increases the risk of investment. In this situation the real estate investors are less likely to invest in real estate.
8. Increase overall cost of construction: The increase in crude oil price increases the overall cost of construction of various real estate properties. Beside increasing the price of various real estate components, it also increases the labour cost of construction.
9. Increase inflation rate: When the crude oil price increases it also increases the rate of inflation and high rate of inflation is largely responsible for increasing the overall real estate price.

In Summary

In today’s globalised world each sector of the economy has influence on other sectors. The crude oil is considered as one of the major driving forces of the global economy and hence increase in the price of crude oil greatly influences the real estate price.

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