As if the slow economy, crippled with high unemployment weren’t enough, now we are facing “sticker shock” at the pumps. How will this latest assault impact the beleaguered real estate market?
That depends upon whom you ask. The Orange County Register recently asked a number of market “watchers” what impact rising gas prices will have on the real estate market.
Kerry Vandel, director of Center for Real Estate at UC Irvine made the following comments to the Register:
“There will be some marginal impact of increased gas prices on the housing market – greater in lower-priced markets than in higher-end markets and greater in more distant communities requiring greater commutes than close-in neighborhoods. But even without the gas price increase, I was not anticipating a sudden strong rebound in the housing market this spring. So the net effect will not be that apparent, only an extension of bumping along the bottom.”
Patrick Simons with Strategic Property Economics feels that those most impacted by the rising gas prices aren’t likely to be looking for a home right now anyway:
“...most home buyers who are wading into this market are financially secure enough that this recent run-up in gas prices shouldn’t have a material effect on their actual qualifying. In other words, households that are so financially strapped as to be affected by high gas prices aren’t in the market right now anyway. They’re renting.”
Despite this fact, Simons agrees that the mental stress of paying more at the pumps will have a discernible impact on sales, especially in areas distant from centers of employment:
“The psychology of this situation does have the potential to be a drag on sales as even the financially secure households start wondering to themselves (and it’s repeated each week they go fill up the tank), “Uh oh, where is this headed? Perhaps we need to buckle down again.”
"And, certainly, at close to $5 a gallon, the cost of commuting starts to become a real factor in people’s choice of location to live. So, homes near job centers will likely do better, assuming price and product are appealing.”
Real estate economist Chris Cagan’s analysis largely echoed these thoughts:
“I think higher gas prices will impact home buying this year, particularly at the lower end. It isn’t just the tightening of money. Higher gas prices affect people’s mood on a direct and frequent basis. They send a signal about the economy, and about what the future itself may be like. This makes people more cautious, and will hold some people back from buying. This will be all the more so if there is a war in the Middle East. In that case, the real estate market might go almost on hold until the results emerge.”
With continually rising gas prices the construction industry will also feel the pinch. According to the Federal Reserve:
“...a 10 percent increase in gas prices leads to a 10 percent decrease in construction after 4 years in locations with a long average commute relative to locations closer to jobs, but to no significant change in house prices.”
The impact won’t just be felt by the builders and their employees, but suppliers, area restaurants and businesses also benefit from housing construction - a decrease in construction can certainly negatively impact a local economy.
In addition to rising fuel prices, global conflicts, unstable economies and uncertain political and economic futures of our economy and that of other nations will certainly not improve the outlook for housing collectively, however pockets of stability which are slowly emerging across the country do offer the suggestion that positive changes will be felt in the markets, it’s just a matter of when.