January 16, 2006

Iran and the return of $70+ oil - affect on housing bubble and far-out exburb house values


Does anyone want to live 50 miles away from the city center (and jobs) when gas prices stay above $3 a gallon? How about $4? How about 6?

We'll see soon

My experience with the Denver bubble in 1990 was that houses far away from the city became nearly worthless - and the ones near the city center held their values better.

I think in Phoenix and elsewhere we'll see a similar trend in 2006 - 2007.

I sure do feel sorry for the folks who live so far away - not only will their home values plummet (especially with builders undercutting them), but what a piss-poor, boring and thanks to gas prices expensive quality of life. Well, they can drown their sorrows at their neighborhood 5-star restaurant (Taco Bell)




31 comments:

000000000000000000000000000000000000 said...

This is why the rural areas of California are in such trouble. I am sorry but if you bought a $500,000+ house in Bakersfield you are screwed. California is a big state with lots of pretty scenery far away from jobs. The jobs that are there go to the long timers and high country folk.

The second home will be the first to go, folowed closely by the country relocation!

Mamabeek said...

If you live in Bakersfield period, you got screwed. Yuck!

Robert Coté said...

This is a common misperception with the inexplicable exception of New York City exurban areas are the same or less energy intensive as are the core urban areas. And transit doesn't make a difference, it is almost exactly as energy intensive per passenger mile as are POVs while costing approx 4 times as much. Additionally transit is highly sensitive to energy costs at the same time it is highly sensitive to passenger fares. The result of higher transportation energy costs will fall disproportionately on the cenurbs not the exurbs.

It isn't the -amount- of transportation but the total cost and those
costs are measured in money, BTUs and time.
$5 gasoline will decimate transit. Transit use falls in tough economies
and $5 gas will not help the economy. Inflation especially hurts
transit and the cenurbs where it operates. As the costs of $5 gas as passed on this will
disproportionately impact transit which typically has costs outpacing
inflation by 3-4 times. Public funding will also dry up in an
environment where people are unwilling to vote for more taxes. Over
time $5 gas will shift vehicle choice to models that have lower
operating costs and generate lower fuel taxes thus widening the gap
beteen POVs and transit for those with a choice. Those more efficient
vehicles will still need the same infrastructure thus the smaller
Highway Trust Fund money will increasingly go more to roads and less to
transit subsidies another multibillion dollar hit to the cenurbs. The consequences are obvious, $5 gasoline will
decimate transit and by association those places served by transit. Oh, and an unobvious counterpoint; transit saw
its' highest usage in 40 years at exactly the same time gasoline was at
its' lowest inflation adjusted price ever. Real urban advocates
should be pushing for cheap gas but their emotional desire to punish
autos in a misguided belief in a zero sum game and will instead continue
to shoot themselves in the foot.

Anonymous said...

Hopefully the high price of gas will knock down the prices of some of the tourist destinations that became overpriced in recent years..ie..Central Coast,Solvang, Lake Tahoe, Carmel By The Sea, Reno, Gold Country, Door County, Lake Geneva, New Hampshire.... and more. I could never understand how the tourist destinations became so overpriced......

Dave said...

Monday, January 16, 2006 10:36:06 AM
Robert Coté said...

This is a common misperception with the inexplicable exception of New York City exurban areas are the same or less energy intensive as are the core urban areas. And transit doesn't make a difference, it is almost exactly as energy intensive per passenger mile as are POVs while costing approx 4 times as much.


Mr. Cote,

Where do get your information? I thought I saw 4th quarter 2005 as having the highest transit use ever or did I read that incorrectly?

Dave

Keeping it real said...

Robert Cote,
If you use simpler language, perhaps you can make your point more clearly. Also, it would be nice to know where you get your facts from.

Lets have less exurbanite banter and more facts.

Lets all try to keep it real, shall we?

Anonymous said...

Does anyone want to live 50 miles away from the city center (and jobs) when gas prices stay above $3 a gallon?

That depends. If there's a terrorist attack, it will happen in the city, not 50 miles away.

Not that I'm trying to change the subject, but it's long past the time when we should start considering nonmilitary solutions to foreign policy problems.

Why is it that the US is the only country that continually (for the last 60 years) finds it necessary to send its army halfway around the world to "defend" itself?

You want a better economy with reasonable housing prices? Stop spending more than half a trillion dollars per year on war.

(BTW, that's more than the rest of the world put together, even more ridiculous considering that most of the rest of the world are our allies.)

Robert Coté said...

I thought I saw 4th quarter 2005 as having the highest transit use ever or did I read that incorrectly?

I assume this was in response to my; transit is highest when costs were lowest, comment.

Transit data are notoriously slippery critters. The most recent APTA Public Transportation Fact Book for 2003 came out last May so we are depending on older and IMO unrealistically rosy data. Nonetheless:

Table 8 (p. 28) of the Fact Book shows, 2003 ridership was 2.25 percent lower than in 2001. The 2.11-percent increase from 2003 to 2004 failed to make up for this decline.

Understand also that "ridership" is a concoction designed to fluff up transit numbers. I the nation's largest transit using areas the number of boardings (ridership) per completed one way trip has been rising considerably. The single seat ride is a thing of the past.

The general point is that rising transit usage and urban core renaissances occur during good economies. $5 gas will not make for a good economy.

[As you suspect, I can expound for pages on the subject of exurb/cenurb transit/POV but this isn't the place.]

Out at the peak said...

This is an interesting perspective of the fall out on the next oil crisis. Home builders will be hurting since they can only develop further and further outside the city.

Perhaps inner city values will continue to prop up due to this, but the consumer is paying either way. They could be forced into renting near the city if they just cannot afford higher costs.

Anonymous said...

I think this is having an effect in Phoenix. I know some people that are having a hell of a time trying to sell their homes in Estrella Mtn Ranch.

I could never understand why working folk would choose to pay MORE to live in far out communities like Estrella, Verrado, Vistancia, and of course Anthem. Not only is the commute horrible, but the lack of ammenities and price of gas has got to hurt.

Both of my previous and current homes are near Loop 101, and I think that helped my old place sell when the market was just beginning to slow down late last year. As they say in real estate, it's all about location, location, location...

Wes D said...

Very interesting point. It's worth pointing out that many of the people living in the suburbs seem to be stuck on "new". New houses, new SUVs, new stores.

St. Louis is a perfect example of this. The city is surrounded by multiple bedroom communities (Warrenton, Wentzville, O'Fallon, Festus, Fenton) where there are plenty of new tract homes but no work. In an environment like that, it's 50 miles just to the city center. The common argument is "No one living here work downtown". That's true for now, but what if some of the businesses close up and the only jobs are downtown. Now a 2-hour commute each way in a monster SUV getting 14 MPG just to live in a boring tract home that they can't sell because many other neighbors will be in the same boat.

Tampa, FL isn't quite as bad. Brandon doesn't have much work but it's only a 20 minute drive from downtown on a good day. However some homes north of Tampa are a long ways away. Took a country drive up that way yesterday - it took 1/4 tank of gas in my V8 car, but there are plenty of homes for sale and many, many empty lots with FOR SALE signs on them in tract home subdivisions. It would financially kill me if I had to do that drive everyday. Orlando is another mess of a sprawl.

Basically, another iron in the fire-sale of tract homes.

Anonymous said...

I think the perception in Phoenix is the further you mve away from the inner city the less crime you will encounter (I believe this holds true in many large cities). Also, many families believe the school systems are better. I know from a couple of police officers that the crime rate is in fact much lower in places like Anthem. I'm not sure about school performance. So, will people continue to pay higher gas prices for less crime and the perception of better schools???

Anonymous said...

Speaking of St. louis,
Why would anybody want to live downtown? what a shithole!

St. louis is at the top of my list as the worst place on earth to live.
No wonder they live 50 miles from downtown, It's not far enough!

Dogcrap Green said...

Keith,

Shouldn't you be resting from your long journy?

There is more to life than Blogging

Dogcrap Green said...

Anonymous you said,

"I think the perception in Phoenix is the further you mve away from the inner city the less crime you will encounter"

you are right about preception. but an intersting reality occured with the housing boom that got many out of the inner city.

Drug use is now higher in Baltimore County than in the City.

The high school drop out rate is higher in Baltimore County than in the City.

Teen pregnacy is higher in Baltimore County than in the city.

Assualt with a weapon in school is higher in the county than in the city.

But it is difficult to argue with preception.

The truth is in the city parents are the parents to their childern. And the difference s starting to show.

Grinch34 said...

Rober cote, Europe has high gasoline prices (equivalent to $6 to $7 a gallon) do they not have good public transportation???

Wes D said...

Anmo @ 3:23 re St. Louis:

I partly agree with you, but there is plenty of affordable, nice, safe housing on the 270 beltway from I-70 to the Mississippi river going south (270 from I-70 to the Ms river north is a dump). The difference is new. I guess it's worth more to live in a new tract home in some boring subdivision than it is to live in a nice custom built home that is a little older with mature trees and great school systems.

keith said...

dogcrap - thanks for the concern... catching the BA direct to heathrow at 7:30pm tomorrow...

but hey, this bloggin is easy stuff.. 10 minutes a day.. great hobby, takes my mind off visas, permits, flat rental, etc - i.e. life

might have a bit of a drop off the next few days though as I take to the air and get settled in to the hotel, start looking for a flat

oh, here's the initial math I'm seeing over in london - $1 Million US to buy a 1 bedroom flat (zone 1) and about $3000 a month to rent it

In other words, expensive on both ends, but much cheaper monthly to rent, and appreciation is down to zero at best

and good god do those guys tax everything or what. Do you know there's a television set tax? kid you not

cheers

keith said...

$100 oil here we come - security council agrees to take iran on

http://news.yahoo.com/s/ap/20060116/ap_on_re_mi_ea/europe_iran_13;_ylt=AttDx9P_nrEW.2UN697CzsNSw60A;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

who'll blink first - crazy ass muslim radicals, or oil-addicted world

guesses?

crisp&cole said...

I live in Bakersfield and have seen my home (NOT INVESTMENT) increase in value by 200%. I think it is a total JOKE. Anyone who bought a here in the last two years will lose their ASS!! $500k for a home is pure stupidity! We dont have the economic base to support those prices.

Robert Coté said...

Grinch34 said...
Robert Cote, Europe has high gasoline prices (equivalent to $6 to $7 a gallon) do they not have good public transportation???


I fail to see how the european situation relates to the US in this instance. While also massively subsidized their transit systems are far more energy efficient. What you are saying is that if we get $5 gas and add on $3 in taxes we can start to resemble Europe. Indeed we will. This is the misguided zero sum game I warned against.

Dogcrap Green said...

last time i was in London they were proposing a by the mile tax of 1.5 pounds per mile!!!

I use to work in DC and live in Baltimore. The english tax would have been about a $100 a day tax for the privilage of working.

Kieth prepare yourself for an out of control tax hungry government

Luci said...

Speaking of St. Louis again...
Some of the influx to the communities around St. Louis is due to pending military base closures. Since Scott AFB is not slated to close I wonder if places like Shiloh and O'Fallon will see less of a decline as support personnel are reassigned. I also wonder how much so many military base closures will add to the national decline overall anyway. When it rains, it pours.

Grinch34 said...

Robert Cote said:

The general point is that rising transit usage and urban core renaissances occur during good economies. $5 gas will not make for a good economy.

I agree that $5 gas will not make for a good economy. Are you saying that by using public transportation, that gas prices will rise??

Dave Barnes said...

You wrote: "My experience with the Denver bubble in 1990"

What?!

The Denvber housing bubble peaked in 1985 and the collapse ended in 1989. Price fell (on average) about 4% per anum for those 4-5 years.

,dave

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Anonymous said...

Fremont General Corp., a sizable subprime mortgage lender, has stopped providing "piggyback" second mortgages that are frequently used by financially stretched borrowers seeking to finance 100% of a home's price, according to emails received this week by mortgage brokers.

Officials of Fremont, based in Santa Monica, Calif., couldn't immediately be reached for comment.

Such second mortgages typically cover the final 20% of the home's cost, supplementing a first mortgage that covers 80%. Investors have grown increasingly wary of buying such loans from lenders amid a surge in defaults by recent subprime borrowers. The holder of the second-lien mortgage can hope to collect proceeds from the sale of collateral only if the holder of the first mortgage is fully repaid. In many foreclosure cases, second mortgages must be written off.

Explaining the decision to stop providing such seconds, the Fremont email received by brokers said: "This is due to investors having no interest in second mortgage loans."

Reduced availability of these piggyback loans and other mortgages designed to help people stretch to afford homes is likely to eliminate some potential home buyers this year, housing industry watchers have warned. Lenders are rapidly tightening up on their credit standards in the face of pressure from regulators and wariness among investors who buy mortgage securities.

Second-lien mortgages accounted for about 6% of the dollar amount of loans originated by Fremont in the third quarter of 2006 and about 8% for the first nine months, according to the company's latest earnings statement.

Share prices of subprime lenders have plunged in recent days amid growing concern about losses on defaults.

Anonymous said...

Sorry, Cote, I don't buy the SOV's use same energy per pax/mile as transit ... doesn't wash. Let's say you have 30 pax making a two mile urban trip at 3mi/ga diesel versus (generously) 25 cars making a two mile trip at (generously) 18 mi/ga gasoline.

The bus: .011 gal/pax-mi
The cars: 15 gal/pax-mi

Total bus usage: 0.67 gal
Total cars usage: 2.78 gal

I don't know what kind of fuzzy math you're using to make these equivalent!

(Empty bus? 60 mpg SMART cars with full loads? And my numbers don't even cover the fact that exurban commutes are much longer than urban transit commutes and the fact that transit companies hold vehicles for 10-20 years, whereas SOV's are much more disposable, incurring all sorts of energy use.)

Btw, I agree about recessions and drops in transit ridership (and spending). Just look at the early 1980's vs. the mid-1990's.

However, I would not conclude from this alone that exurbs RULXORS. When people don't have the money for bus fare (subway fare, train ticket) they bike or walk. When people don't have money for gas in the burbs ... they're SOL.

I talked to a man last night who basically left his hometown in Ohio because he couldn't get a job that didn't require a car. He went to a state where he could hold a job without a car and take the bus where he needed to go, until he could get on his feet again. The recent stories in the paper today about suburban poverty crisis seem to quite apropos. People living out in the country can make it through a crisis, and people in the cities have more resources to draw on (as well as doing the usual doubling up on rent and going without heat--why do you think cities are so sexy?), but people in the suburbs start to hurt really badly economically.

Of course, there is the problem of urban crime.

Anonymous said...

I think this is having an effect in Phoenix. I know some people that are having a hell of a time trying to sell their homes in Estrella Mtn Ranch.

I could never understand why working folk would choose to pay MORE to live in far out communities like Estrella, Verrado, Vistancia, and of course Anthem. Not only is the commute horrible, but the lack of ammenities and price of gas has got to hurt.

THESE PARTS OF THE VALLEY ESPECIALLY THE NORTHERN COMMUNITIES OF ANTHEM AND VISTANCIA ARE FAR MORE SCENIC IN TERMS OF TOPOGRAPHY OF THE NEIGHBORHOODS AND THIS IS IMPORTANT TO RECREATIONAL FAMILIES LIKE OURS.