Some HP readers complain when we "diverge from housing".. Iran, Iraq, Wal-Mart, Gas Prices, Immigration, Gold, Oil, Bush, etc.
Well, it's all connected. Here's a take on gas prices and housing:
Just our opinion, but spiraling gas prices may present an abundance of unintended consequences when it comes to the housing market. Some of these repercussions could ultimately be healthy, but other will pose some serious problems for consumers and the industry.
The Effect on Suburbia
The Effect on Interest Rates
The Effect on Housing Construction
So we may be looking at a very different America as a result of increasing prices at the pump. This could result in revitalized urban areas, more energy efficient houses, or a reversal in the housing price/commute ratio that has driven development for several years. Or it could result in a situation where housing prices and interest rates have both risen well beyond the ability of average wage earners to cope with them.
May 03, 2006
What Do High Gas Prices Mean For The Housing Market?
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58 comments:
Assuming an average commute of 20 miles each way. For a 20 days/month average job. That's 800 miles/month.
At $2.5/gal for an average 20 MPG vehicle, that works out to 40 gallons per month = $100/month.
At $3.3/gal for the same 20 MPG vehicle, we are looking at $132/month.
$32 more per month, is it enough to break the camel's back? only if all other food and services increase price as well to compensate for the increase in transportation cost.
It sill will be the mortgage reset that will set off the burst. That's the 800 lb gorilla.
Let me have a look into my Crystal Ball. I see....
Gypsy Cabs!
No, wait, there's more...
Refitted school buses with ladders and roof seating.
Hmmm, scooters and JITNEYS!
The future looks a lot like...Delhi! No, wait, that's not like Delhi.. No it looks more like Kathmandu.
Ok then, the future looks like Kathmandu.
Have a nice day.
"Or it could result in a situation where housing prices and interest rates have both risen well beyond the ability of average wage earners to cope with them."
We're already at this point, but people don't realize it. We're living daily life in this credit bubble. Most people pay for gas on their credit card. Many new homebuyers have ARM's, interest only at that, yet are still paying over 50% of their paychecks for housing.
Gas, energy, gas, energy, yadda, yadda, yadda. No insult intended but there isn’t anyone that can connect the dots with a housing bubble. Let’s give it a rest shall we? I am certain the sun will come up tomorrow a little earlier than yesterday and I’m almost certain housing prices will be a little lower. Come this fall I’m certain the sun will come up a little later and housing prices will be a lot lower. Lots of people spend more on lattes and mineral water than gas but no one ever tries to draw that connection. Transit fares are skyrocketing yet…
You want to try price corellations? How about the cost of lumber and labor making it expensive to upgrade exisitng homes causing people to buy up rather than remodel? A perfectly fair and logical conclusion except that it doesn’t fit the bubble model so it is chucked. See my point? No, I can see out the on your puzzled faces, people don’t. Try this then; the high price of gas will cause people to stay home thus increasing their willingness to spend more for the place they spend more time and increasing their willingness to improve their homes for energy efficiency and their willingness to hit the housing ATM for the costs andthese expenditures will stimulate the economy and raise the average price of homes. Perfectly logical and totally unacceptable if you are one of the energy prices will kill conventional housing clarions.
The thing is too; is that the same people who gloat over their 30 to 300% increase in their home value have no problem with that, but scream about the rising cost of gas. The hypocrisy of it all is amazing.
Most people already enjoy the privacy of thier own homes, and for the most part spend a significant portion of their free time there watching tv. I find it hard to think how those mentioned above could go out even less. Nevertheless, most people have to commute to work. Therefore, the higher gas prices will effect prices imo.
"$32 more per month, is it enough to break the camel's back? "
First off most people do more then just commute to work with their car. Secondly lots of households have two cars.
I tend to agree that regardless of what happens, people who have a tendency to go out and do things won't change their mind because of the price of gas.
What's more likely is a change in their other habits. Instead of buying gas with cash, it's using credit.
The 'stay at home' proponents are out in full swing. Smoking bans will ruin restaurants - Nope, hasn't happened. More people eat out now than before. Those who smoke at bars go outside and smoke.
Exurbs will fall futher faster. Again I think most of those people are clowns for spending all the $$ and time just to live in something new, but hey, it gives the rest of us something to laugh about.
Robert Cote - Although I agree gas prices aren't the straw that will break the camel's back, I think it will be a contributing factor. Housing prices have resulted in a very high fixed cost in the budgets of many people so it only takes variable cost rising a little bit to put them over. Personnaly I think electricity and natural gas cost will be a bigger factor for those who bought McMansions without really running all the numbers.
I agree with Robert Cote, $3/gallon gas won't single-handedly bring down suburbia. However, if you think of suburbia in 20 years time, congestion of our roads and the price of gas may together make commuting long distances by car untenable. Eventually society will have to adopt one or more of the following: telecommuting, staggered work hours, carpooling, improved mass transit, shift from suburbs to urban centers. Some people seem to think that the only possible solution is to move from the suburbs to the city but that is only one possible solution among many. I personally could see telecommuting improving substantially over the course of the next several decades. And when that happens it will be the city property that takes a hit and it will be rural county property in the heartland that will experience an increase in value... that is if they can ever get broadband.
How about when Heating oil costs $3.00 or $4.00 dollars here in the Northeast?? Increased foreclosures here(Mass) were blamed on people choosing between heating their homes and paying the Mortgage.This Winter was amazingly mild.What happens when it we have a severe Winter and it costs a thousand bucks to heat the McMansion???
By focusing on the price of gasoline, you all are missing the bigger picture. Inflation is out of the bag, and if you know anything about economics, there is no such thing as a "little" inflation. These price increases will have profound effects throughout the economy and the full effects won't be seen for 3-6 months.
In our locale, we are seeing highway construction projects 10% over budgets drawn up last year, and many builders say the price of materials and labor is rising 1% a month.
Everything important happens at the margins. You can pretend that a marginal increase of $32 is no big deal to a typical consumer, but in the aggregate it will suppress buying at every level. Over 2/3 of our economy depends on consumption spending, and anything that reduces it will be bad news.
http://www.themoscowtimes.com/stories
/2006/05/03/045.html
The world is watching us fall by the short hairs..and fast.
Oil prices do not hit consumers only in higher gas prices. High oil prices are inflationary due to its variety of uses in our economy. Inflation is just starting to filter through right now.(More to come) Our socialist zoning laws have spread us out so far that most people have to drive a car to get a gallon of milk. (good going socialists, not so smart now) My future house will have the broad side facing south to take advantage of solar gain in winter and shading in the summer. I plan on minimizing the north facing windows. Most houses today are energy hogs and are a lost cause due to overlooking the solar movements during the design phase.
Tom
Most people already hit their housing ATM when rates were much lower. With higher rates, fewer will be willing to do so in the future.
foobeca: Tell me more about SLC Housing. Thanks. 41cadillac
and many builders say the price of materials and labor is rising 1% a month.
1% a month is 13% a year. that's huge.
It'll also affect my relationship where my girlfriend is 90 minutes away. I have to give her gas money because she's still a college student. So she won't be visiting as often.
In the post-peak oil future, the young will be amazed to read that people now spent 5% of their incomes on energy and 50% on housing.
In their world, it will be the reverse.
I would agree with Robert Cote that the reality of the gasoline price increase will not be a killer.
However, it will have an outsized psychological effect.
I have read of people getting rid of their big SUVs to buy more economical cars because of rising prices. This makes no sense. I imagine many of them go upside down on their existing SUV loans to dump them, take on new and more debt to save pennies by comparison.
Don't forget, these are the same bozos who bought the IO ARMS homes sure they'd make 20% per year from now on, with no concept or thought of the longer term consequences.
80% of all jobs growth in the last two decades has been outside the core cities. The suburbs are here to stay. People think that because bus fare is 85 cents, that's how much it costs. Public transit is twice as slow and twice as costly and no more energy efficient than autos. Public transit total costs have outpaced inflation by 3-4x for many years as well. Fuel costs are only a small part of POV ownership. POV ownership is only a small part an exurban oriented lifestyle. Sure specific and general price increases are going to be painful but make no mistake on one point; the cities will suffer more under EVERY concievable scenario. There's a reason cities are more expensive and it so obvious the back to the ghetto crowd misses it. Cities are inefficient. If we are entering a period that rewards efficiency it isn't the cities. I can slap 80% of my electricity needs on the roof for $7000 plus my brother-in-laws labor. The freakin' permits alone would cost that much in the big cities but then you'd not have a place to hang the panels anyway. I get increasingly worried about Boston. Ageing population, actually getting more than a year older per year for a while. Oil heat in something like 40% of homes, etc. The last person out won't have to turn off the lights and turn down the themostat, they'll be off.
I would say that Oil prices have now caught up with inflation after the trough in the mid-late 90's. If Oil gets up around 100 dollars(where it was during the "oil shocks of the 70's adjusted for inflation) a barrell, problems WILL ensue. We aren't there yet, but it is closer than you think.
Ben's threads move on so quickly. My first response was actually a direct quote from my blog. If anyone is interested the cenurb v. exurb issues or just wants to add more as Ben moves on go to:
http://exurbannation.blogspot.com/2006/04/5gal-nonsense.html
BTW I posted this 2 weeks ago so I'm not "poaching" Ben's fine blog. This is just one ofr those tangetial subjects I am passionate about.
Public transportation is a joke in some areas. My commute to work is generally 5-10 minutes. One time I had to have my car worked on at the shop. I looked at the bus schedule and it would have taken me over an hour to get to work. I ended up renting a car for two days. I live and work in the surburbs and it's nice not having to worry about rampant crime, sleazy big-city politics, noise and pollution.
Brokersleaveyoubroke, you disagree and think that zoning laws have nothing to do with commuter America? Just look at the picture. Sure, we need more zoning laws because the government should plan American life and save us all. (Like the USSR?) Here is an interesting article concerning socialism I mean zoning laws.
http://www.etherzone.com/2004/beam032304.shtml
Tom
Zoning regulations protect personal property. They are far from perfect more people are hurt by loosening them by by tightening.
It's affecting my job search. I currently work 20 miles from home. Most jobs I come across are about 40 miles away and I have to take the O.C. toll roads to get there. It will cost me in gas and tolls $300 more a month than what I pay now. In order for me to break even, I would need a job offer that pays 7k more minimum.
Gas prices are only a big issue because of the number of large SUV's and pickup trucks on the roads today that were recently bought and many have loans on them. It sucks to be paying $500/mo on a car and then have gas costs at a similar level.
Energy-efficiency has been a low priority for too long. McMansions have been thrown up with minimal insulation, building codes haven't been updated, and in general, efficiency has not been any part of a rational discussion.
I drive 4 miles a day to work and home. Combined with the fact that my car is paid off gas prices (& transportation costs) are a minor part of my budget.
I've already noticed the rising gas prices in my budget. If this continues, I'll be paying an extra $30-40 per month on gas. I've noticed, because I have a strict cash budget and usually use cash for gas. Lately, I've been short a tank and have had to put one purchase on the credit card. Now I have to make up for that by cutting back somewhere else which will definitely be from my savings account. So, if I don't own a home and have no debt and I'm feeling the pinch...and can't begin to wonder what it's doing to those who are already right on the edge. By the way, I own a honda civic....
I ride my bike 3 miles to work and back. Sometime I walk (takes me 40-45 minutes). Unfortunately here in NJ it looks weird. In Europe there are much more bike trails than in US. I think situation is better in cities with big universities (students ride bikes on campus streets).
Gas prices inevitably will go mich higher, so folks will commute more.
Most people will make sacrifices in many things (type of car, number of cars, maybe do some carpooling, maybe own a smaller home, or less furniture, do without some goodies) before they'll move deeper into the cities and put their kids in a crummy urban school district.
However. We are a big country. If even 2% of 250 million people decide that exurbia isn't worth it, that's a lot of people. It will change the way cities develop and densify.
Anyone live in Tempe, AZ? I know the newly built areas further out in Phoenix keep falling but what's it like in Tempe?
Some HP readers complain when we "diverge from housing"..
It's your blog. You can write what you darn well want to, and the whiners can move to Cuba for single party voting and curtailing of freedom of speech.
If they don't like it you can refund their money.
You can write what you darn well want to, and the whiners can move to Cuba for single party voting and curtailing of freedom of speech.
Why move to Cuba?
We've got all that right here in the USA.
If even 2% of 250 million people decide that exurbia isn't worth it, that's a lot of people. It will change the way cities develop and densify.
Made up data. Anyone who makes up numbers this obviously bad and then uses it to justify a conclusion is not interested in the real data.
I think we're in for some pain but it's not like this has never happened before. Look at the Great Depression and the 1970's to early 1980's.
I think we can all agree this easy money policy by the Fed is killing us with debt and inflation.
Bake McBride said...
My Metro card in NYC costs me $76.00 per month for unlimited Subway & Bus rides. Commuting, while living in NYC, is one of the few things that's cheaper to do then most other places.
Parasite. Try paying the true cost of your trips not the publicaly subsidized cost and get back to us from that moral high ground. Until then you are a welfare cheat.
Amazing someone cheering $5 gas while at the same time paying a vastly underpriced transit fare.
Which is cheaper in terms of energy use?
100 drivers heading to work in individual SUVs... or 100 people riding public transportation?
Think about it.
Did London pass the commuter tax?
When I was there last summer some clown was proposing a tax on commuters.
If I were paying the same tax when I lived in Baltimore and worked in DC my weekly tax would have been $800!!!!!
What amazed me is there was no out rage over there.
"Which is cheaper in terms of energy use? 100 drivers heading to work in individual SUVs... or 100 people riding public transportation?"
It may not be that simple. The answer is obvious for the energy used per rider -- the public transportation wins.
But a lot of energy was used to build the busses or subway and even more is used to maintain them. It's like the people who buy EVs and act like they are creating no pollution because their vehicle uses electric motors instead of a gas or diesel engine. They forget about the pollution generated when those big batteries were manufactured in Taiwan, or the pollution at the power plant that generates electricity used to charge them.
Unless you are riding around in a solar-powered vehicle, you are causing pollution somewhere.
"But a lot of energy was used to build the busses or subway and even more is used to maintain them."
That's not an adequate defense of private transport, given that it takes tons of energy/resources to build a car factory and operate it...building and maintenence costs
are a wash, if not better with mass transit (it takes less to maintain one diesel bus engine than 100 private car engines).
As for NYC subway riders being welfare parasites...we get less back for our federal tax dollars than almost any other community in the US...all that money goes to subsidize highway projects elsewhere so the rest of you dont have to walk...don't forget the
subsidies to the oil industry that
keep gas prices artificially low
even at $3+
Which is cheaper in terms of energy use?
100 drivers heading to work in individual SUVs... or 100 people riding public transportation?
Think about it.
The answer is about the same. Surprised? It is common knowledge in the transportation planning profession. You just don't hear it because transit advocates are embarrassed.
[Try paying the true cost of your trips not the publicaly subsidized cost and get back to us from that moral high ground.]
I'm not cheering higher fuel costs...just making a point that it does not effect me living in NYC. I pay the going rate for transpertation...and will pay more if they raise the costs. I don't own a car so I don't have a choice.
You do not pay the going rate; you pay the subsidized rate. You don't see it but we all pay for NYCT transit costs.
FYI-For what I pay in city taxes, compared to what I use in services, the city makes out very well off me.
As an individual in isolation perhaps but transit is a wealth consumer. Transit is one of the reasons citiy taxes and costs are so high. Higher fuel [energy]costs are crippling transit. There's a time delay and buffering through subsidies but transot costs are exploding faster than POV costs.
If the 9 million people in the NYC areas all drove everywhere instead of using the mass transit system, nobody would get anywhere and you would spend thousands of dollars a year sitting in traffic idling for endless hours each day. Where would they all park?
Public transit is very much needed in some areas and almost useless in others.
So far today I've processed two client configurations and dropped off kid#2 at band and picked up kid#1 for AP study class and booked $xxx worth of hours gone to the bank and Walmart for a vaccuum cleaner belt so the housekeeper can finish and in 1 hour I am off to kid#3 CCD class and to use my 20% off everything Harbor Freight coupon and install a wireless workstation for yet another client. Why do you ask? The issue really is; how do you know all this cr@p? Urban planning and transportation are my hobbies. That's why when people think the exurbs are going away I can pull up from memory and database the reams of true facts. People absolutely hate it when I crush their fantasies. They are so used to mutual stroking societies where transit and urban planning myths are accepted without question.
Public transit is very much needed in some areas and almost useless in others.
Public transit is needed to PRESERVE outdated urban forms. Nothing more.
If the 9 million people in the NYC areas all drove everywhere instead of using the mass transit system, nobody would get anywhere and you would spend thousands of dollars a year sitting in traffic idling for endless hours each day. Where would they all park?
You have the tail wagging the dog. It is the billions in transit subsidies that keep NYC from collapsing. Come on, honestly; without transit would the ppeople move back or the jobs move out?
Perhaps we should usher in a new urban rennisiance by subsidizing transit say, 50%. Think the equal of $1.50 gas, $11,000 Civic hybrids, half price auto isurance, the whole deal. Sound fair enough? Fine. DOUBLE existing fares. What? Not fair enough? Triple fares, quadruple fares. If a 4x fares we held current ridership we'd have achieved a level playing field.
Hey, $5 gas will certainly put people in the mood for higher taxes right?
The answer is about the same. Surprised? It is common knowledge in the transportation planning profession.
So will the cost still be the same if gas prices get up to $7-8/gallon?
According to the following page,
a bus (all seats taken, noi standees) is about 10 times as efficient as a car with a single person in it.
http://www.vcn.bc.ca/t2000bc/debate/issues/efficiency.html
According to the following page, taking into account the actualy number of people riding the bus, one sees that the number of gallons per mile per person is about 35.
http://www.saveportland.com/Car_Vs_Tri-Met/energy-cost-death-02d.htm
But the bus uses the same amount of gas, whether or not you ride it, so, if you're personally hesitating one day between taking the bus and driving to work, taking the bus results does not affect the energy spent and so it's clearly a better choice.
The Repugs defund any kind of public tranportation system because they think of them as "socialist"....and after it's bankrupt and shabby, they claim the system doesn't work.
Just like they do with government programs...except military stuff.
will the cost still be the same if gas prices get up to $7-8/gallon?
No of course not. Higher gas prices will acellerate POV fuel efficiency while public transit continues its' near 35 year uninterrupted slide in passenger mile fule efficiency.
Some else claimed the "Repugs" defund transit. I'd like an example since the reverse has been the record but then this isn't about facts anymore just wild claims with no basis. What's one more?
Oh and a third metions the 2003 save portland website. Haven't seen that one for years. While generally correct it uses several false assumptions. Most important being that the average POV has 1.58 passengers not 1.2 as claimed.
But this all drifts. Transit supporters are not going to stop supporting transit just because it is twice as slow and 4x as expensive and no more fuel efficient. The rest of the world will continue to abandon transit as a mode choice continuing a 97 year trend away from the cenurbs.
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You guys that think telecommunting will be the answer are dead wrong.
If a job can be done with telecommuncations there is no way it will stay in the US a long time. They will teach some guy on the other side of the world to do it for much less.
$3 gas will break the economy in a few months becasue every economy is built in a pyramid with the low wage earners being at the bottom the the structure. Right now they are pawning stuff and falling behind on payments for TVs and furniture they could not afford in the first place. If this keeps going on and on we will have what is the inverse of a trickle down economy where the pyramid comes crashing down becasue the foundation is just gone.
"If a job can be done with telecommuncations there is no way it will stay in the US a long time. They will teach some guy on the other side of the world to do it for much less."
YOU ARE AlSO WRONG. The people that will win are the ones can TC form home several days and then come into the office 1 or 2 days for meetings and face2face stuff. I have 2 overseas engineers working for me and there is a big breakdown in communication because of distance. Its not the same.
PRAVDA also means VODKA.
Why can't we run our vehicles ith Vodka?
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