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The Effects of Fracking on Home Values and Mortgages

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fracking The Effects of Fracking on Home Values and MortgagesYou’ve probably heard the word “fracking” occasionally thrown around in the news over the past couple years. Fracking is shorthand for hydraulic fracturing and has become an increasingly popular process in which drills are used to crack shale rocks found underground in order to release the natural gas found inside them. Although fracking has been around for more than fifty years, the recent discovery of new shale in the northeastern portion of the United States has dramatically increased its occurrence.

The process of fracking is considered controversial predominantly because of concerns that carcinogens from fracking can find their way into nearby drinking water. Some homeowners also claim that fracking can cause methane gas seeps and even instances of tap water igniting.

Some reports suggest that fracking can actually benefit homeowners. In an August 2011 economic assessment report by the New York State Department of Environmental Conservation findings revealed that fracking could lead to an overall regional increase in property values for homeowners due to increased economic activity as construction workers and production workers moved into the area.

Other findings within the report suggest the opposite though, stating that residential properties in close proximity to gas wells could see a decreased effect on their home’s value. The Save Colorado from Fracking Coalition reports an instance in which a Pennsylvania couple had to evacuate their home when it was revealed to be contaminated with explosive levels of methane gas due to fracking. After initially putting their home on the market for $250,000, the home’s value has since fallen a whopping 85 percent to only $35,000.

The instance involving the Pennsylvania couple may be extreme, but in general, homes that are in close proximity of fracking may have a decreased home value of about 20 percent as a result of construction, noise, traffic, airborne dust, and road damage.

Angela Sucich of Zillow recently explained that companies involved in fracking are granted the right to explore and drill the land near a homeowner’s property due to a “gas lease.” This is because a homeowner’s property/surface rights are usually separated from the right to underground minerals, which can ultimately lead to decreased property values unless a homeowner has “mineral rights.”

Sucich goes on to add that those with mineral rights could see their home’s value increase and could receive royalty payments upon signing a gas lease. Borrowers must receive consent from Fannie Mae and Freddie Mac before signing the lease, otherwise the lease could result in a mortgage default.

If a homeowner decides that he or she wants to sign a gas lease, they must consult their state’s guidelines, negotiate drilling details associated with the lease, and most importantly, consider environmental risks. Fracking is by no means without repercussions and the overall, long term effects of hydraulic fracturing are still far from being revealed.