Oil prices rise. Will house prices follow? An easy-to-understand impact analysis.

Many people may see oil prices as a matter of energy and transportation, while real estate is about housing. But in reality, these two are inevitably connected through costs and economic structures.

When oil prices rise, the impact is not only on consumers directly but also spreads to many industries, especially the construction sector, which is the core of the real estate market. From construction materials that require energy to produce to the transportation of materials from production sites to construction sites, all are affected by the increased oil costs.

Moreover, oil prices also affect hidden costs such as electricity, labor, and operational costs of developers. When these expenses increase, operators often have to consider them when setting house prices to maintain business viability.

Another important dimension is the impact on the overall economy. Higher oil prices often lead to increased living costs, which may affect consumers' purchasing power and influence short- to medium-term decisions to buy homes.

However, the relationship between oil prices and real estate is not immediate but occurs gradually through various interconnected factors such as construction costs, market conditions, and demand at different times.

In summary, oil prices and real estate are structurally related, with oil prices being one of the variables affecting costs and house prices in the medium to long term. Although not the only factor, it is an important component that investors and buyers should closely monitor.

When oil prices rise, the impact does not occur on just one side but gradually passes through a chain to various costs in the real estate industry, which ultimately can be reflected back to house prices to some extent.

Understanding how oil prices and real estate are connected in different dimensions helps to see more clearly why house prices tend to adjust during certain periods.

Construction costs increase

Oil is a key cost in the production process of construction materials such as steel, cement, and various prefabricated materials. When oil prices rise, the production costs of these materials usually increase accordingly.

For project developers, higher construction costs directly affect the cost per unit price, which in many cases needs to be reflected in the selling price to maintain profit levels and the value of project development.

Higher material transportation costs

Construction requires transporting large amounts of materials from production sources to the site and moving them within the project itself. When oil prices increase, transportation costs also rise accordingly.

Although this expense may seem like a minor cost, when combined across the entire project, it becomes a significant figure and affects pricing in the next phase.

Labor and energy costs adjust

Oil prices also impact the overall cost of living, such as travel expenses and daily living costs, which may cause construction labor to adjust wages according to the situation.

At the same time, energy costs on-site, such as electricity or machinery usage, tend to increase, resulting in a continuous rise in the overall project costs.

Operators adjust selling prices

When total costs increase, operators must decide whether to absorb the costs or adjust selling prices, which in many cases is a gradual price increase.

However, price adjustments depend on market conditions and purchasing power. If demand remains strong, house prices may rise, but if purchasing power slows, operators may choose to delay price increases or use promotions instead.

In summary, when oil prices increase, they affect house prices through various costs, including construction, transportation, and energy. Although the impact does not occur immediately, it gradually accumulates and is reflected in selling prices in the medium to long term. This is why oil prices and real estate have a significant economic relationship.

When seeing that oil prices rise, many might expect house prices to increase immediately as well. But in reality, the relationship between oil prices and real estate does not always have an immediate or linear effect.

The main reason is that house prices do not depend solely on costs but also on market demand and consumer purchasing power, which are key variables determining how much developers can raise prices.

During periods when oil prices increase, construction costs may indeed rise. However, if consumer purchasing power decreases due to higher living expenses, developers may not be able to raise house prices immediately because of the risk of unsold units or market slowdown.

Another factor is “the project development cycle”, where real estate projects take several months or years from the start of construction to actual sale. Therefore, increased costs at present usually reflect in the prices of new projects in the future rather than affecting projects currently on sale immediately.

In practice, developers often adjust prices gradually or through promotions and sales conditions, such as reducing discounts or adjusting packages, to align with the market conditions at that time.

In summary, house prices do not rise immediately when oil prices increase but gradually adjust according to costs in the medium to long term, depending largely on the economic situation, purchasing power, and market trends at that time.

Apart from the developer's cost side, another equally important aspect is the “purchasing power of consumers,” which is a key variable that determines the direction of house prices in the real market, especially during periods when oil prices rise.

The connection between oil prices and real estate in this context does not arise directly from construction costs, but from the impact on income, expenses, and the ability of consumers to make purchasing decisions.

Higher cost of living affects disposable income

When oil prices increase, daily living expenses such as transportation, food, and various goods usually rise accordingly, resulting in reduced disposable income for households.

For those planning to buy a house, the increased financial burden may cause them to delay their decision or adjust their budget downward, which directly affects market demand.

Increased debt burden and long-term expenses

Higher oil prices may affect overall inflation, which in some cases may lead to an increase in interest rates to control the economy.

When interest rates rise, the burden of mortgage payments also increases, causing some buyers to fail to meet loan criteria or choose to delay their purchase, resulting in a short-term decrease in demand in the real estate market.

Changes in purchasing decision behavior

During periods of higher living costs, consumers tend to be more cautious with their spending, especially when deciding to purchase large assets such as houses. Buyers may take longer to decide, compare more options, or choose locations that help reduce long-term expenses, such as being close to work or near public transportation, to reduce future commuting costs.

Some market segments are more affected

Certain types of real estate, such as suburban houses that rely on cars, may be more affected than urban locations with public transportation options.

Meanwhile, condos near the skytrain or houses in convenient locations may still have demand, as they help reduce the long-term impact of oil prices.

Therefore, oil prices significantly affect consumers' purchasing power, which indirectly influences the direction of house prices. Although oil prices are not the only factor determining the real estate market, they are an important variable that affects buying behavior and the ability to access housing at different times.

When oil prices remain high continuously, the trend of house prices usually does not move in the same direction across the entire market but will adjust differently according to property types and locations, which results from both costs and changing buyer behavior.

Analyzing the trend of Thai real estate during periods of expensive oil must be viewed from multiple dimensions to understand which groups have growth opportunities and which groups may face more pressure.

New houses vs. second-hand houses

New houses are often more clearly affected by oil prices because increased construction, material, and transportation costs are reflected in the selling price.

Meanwhile, second-hand houses have the advantage of existing costs, making prices more flexible, and at times may become an attractive option for buyers who want to control their budget.

Condos vs. detached houses

Condos, especially in the city, tend to gain more interest during periods of high oil prices because they help reduce travel expenses and are often located near workplaces or transportation systems.

On the other hand, detached houses located far from the city may be affected by higher travel costs, causing some buyers to delay decisions or look for options closer to the city.

Urban locations vs. suburban locations

Urban locations or those near mass transit systems usually have an advantage during periods of high oil prices because they meet the needs of a lifestyle that saves time and travel costs.

Meanwhile, suburban locations or areas that rely on private cars may face demand pressure due to increased overall living costs.

Adaptation of developers

Developers have begun adjusting strategies to align with buyer behavior, such as developing projects closer to transit systems, designing energy-efficient homes, or controlling costs to keep selling prices from becoming too high.

These adaptations reflect that oil prices and real estate affect not only prices but also the types of products in the market.

In summary, the trend of house prices during periods of high oil prices will not rise simultaneously across the market but will rebalance, with properties in locations that meet lifestyle needs and reduce long-term costs having more advantages, while investors should closely monitor Thai real estate trends to select suitable opportunities at each time.

During periods when energy costs rise due to oil prices, many may hesitate whether to delay or proceed with investment. Although oil prices and real estate are connected, it does not mean that every period of high oil prices is always a time to avoid investing.

On the contrary, if you understand market timing and choose the right strategy, you can still create opportunities from this situation, especially in markets that are adjusting and have clear differences between locations.

The approaches to consider are as follows

• Choose locations that help reduce long-term costs. Locations near workplaces, transportation systems, or amenities have an advantage during high oil prices because they help reduce travel expenses and maintain continuous demand.

• Focus on properties with real market demand, whether condos or houses. Choose properties that have actual users, such as those near cities, workplaces, or universities, to reduce risks related to selling or renting.

• Analyze costs comprehensively. During periods of high oil prices, hidden costs such as common fees, maintenance, and transportation may increase. These should always be calculated together with returns.

• Look for opportunities in markets that have not fully adjusted prices. Some projects or locations may not yet reflect new costs in their selling prices. Investing at this timing may help secure better costs before housing prices rise in the future.

• Diversify investment risks. Avoid investing in only one type of property or location. Diversifying your portfolio helps reduce the impact of market volatility.

• Plan for the long term rather than the short term. High oil price periods are often temporary in the bigger picture. Real estate investment should be viewed long-term to endure volatility and generate sustainable returns.

In summary, real estate investment during rising oil prices is still possible if you choose strategies carefully and truly understand the connection between oil prices and real estate. Selecting suitable locations, analyzing costs, and looking long-term will help effectively seize opportunities during volatile markets.

From the overall picture, it can be seen that oil prices and real estate are truly connected, especially in terms of construction costs, transportation expenses, and energy, all of which affect house prices in the medium to long term. However, the impact does not occur immediately and does not affect all market segments equally.

While rising costs may push house prices higher, on the other hand, consumer purchasing power may decrease due to increased living expenses, causing the market to adjust its balance rather than a direct price increase across the entire market.

The important thing is to look at the overall market picture, not just oil prices as the sole factor, because house prices also depend on location, demand, and the economic conditions at that time. Understanding these structures will allow for more accurate planning of purchases or investments.

For those looking for opportunities in the real estate market, whether buying to live or for investment, choosing properties in locations with potential remains key. You can explore and compare options at 9Asset to help you make easier decisions and select real estate that best fits your goals.