Posted by Jonathan J. Miller -Wednesday, April 26, 2006, 9:43 AM
What does higher gas prices mean to the housing market?
Mortgage News daily presented the following points in their commentary: The Effects Of High Gas Prices On The Housing Market [MND]:
- Could revitalize urban areas as the cost of commuting outpaces the higher cost of housing in city centers.
- Will place more pressure on city workforce housing issues.
- Will cause the Fed to continue to raise the federal funds rate, tempering prices further as mortgage rates rise.
- Will increase cost of construction materials and labor. These are already stressed due to the high demand and inadequate supply situation the market is currently experiencing.
In the post Who’s afraid of $3 gasoline? [econobrowser] there is the possibility that Americans will be shocked with the discovery that more expensive oil is here to stay and decide that significant changes in lifestyle are immediately called for. If as a result, consumers make sudden changes in plans for spending on such things as cars, durable goods, and vacations, vendors of those products may find themselves left in the lurch. This does not bode well for housing, especially investor and second home markets.
Why $75 Oil Does Not Mean Recession [Rutledge] In Washington today Senator Specter earned his 15 minutes on TV by calling for windfall profits taxes on oil.
That would be the single dumbest thing we could do in a world where oil is scarcer by the day. It would decrease investment in energy and mark one more example of our “capitalism when convenient” school of policy.
But why is the US economy still growing when oil is above $70 per barrel? One reason people cite: it would take $95 oil to be as high as it was in 1981 relative to other prices.
Gas heats Up [Moneyblog] And why won’t reductions in U.S. consumption in oil and gas do much to affect the global price of oil? Because the Indians and the Chinese are just beginning to drive, in their millions.
Its tough to strike a balance in commentary on this issue. The real estate brokerage industry tends to be fairly optomistic about the future, while economists are often writing the market’s epitaph.
Its hard to judge. Coastal markets appear vulnerable while the midwest and southwest are seeing appreciation.
Much of the control of gasoline prices appears to be out of our hands now and OPEC is likely at full capacity, unable to pump out more to ease price increases. We can get it out of the ground but we don’t have enough refining capacity. Conservation efforts won’t have the same impact as it did in the 1970’s because China and India are just getting started on the high consumption track.
Prices are rising at the fuel pump as the weather gets warmer and prices, adjusted for inflation are still well below the price spikes seen in the early 1970’s.
Nevertheless, this week’s obsession with rising fuel prices has reinvigerated concerns over inflation. Inflation means higher interest rates, which means higher mortgage rates, whose impact means many different things in various real estate markets across the country. Clearly, rising gas prices are not good for housing in the long run. The short-term effect will likely vary across the country: ranging from significant price reductions to modest appreciation.