High Gas Prices Helping Real Estate?

To those of you who have been dreading your next visit to the gas station, we have good news. The money you spend on gas may help stabilize the housing market in Orange County. Think of it this way: each time you fill up on $4.50 a gallon for gas, you bring us one step closer to fixing our economic downturn. Don’t believe me. I read it on the news, so it must be true.

 Quoted from the OC Register this week: 

“Cheap gasoline powered California’s inland land rush, so soaring pump prices could actually help coastal markets like Orange County. Average unleaded gasoline prices in California are near peak highs and 12.5 percent above year-ago levels, according the California Energy Commission. The run-up in gas prices — if it changes consumers’ expectations — is likely to affect the California housing markets. In an ironic way.

Suburban markets could languish as higher commutation costs worsen the trade off math of living in cheaper, distant housing markets vs. urban centers. If people opt to stay closer to urban centers, housing in coastal California areas could actually recover more quickly. Already, the general decline in home prices; the advent of echo boomers in labor markets; and consumer changes toward a more urban lifestyle is moving consumers toward population centers. The changing calculus of added commuter costs — largely gasoline — adds insult to injury for distant inland burbs.Answering Service USA

Cheap fuel prices enabled the suburban housing boom in the 1990s and 2000s in combination with, of course, lax mortgage financing. Low gas prices, edgy financing — and its initially more affordable housing — brought a financially fragile population into the inland housing market. Such forces drove up home prices more than anywhere else. So when gas prices almost doubled between 2005 and 2008, these new-owner populations were already on the financial edge. Higher commute prices made the foreclosure crisis worse at the time, according to a recent study by the UC Santa Barbara Bren School of Environmental Science and Management.”

They say with every downturn there is often a silver lining. I am not sure I agree with everything state in this article, especially the last paragraph. But I do believe the rise in gas prices could indeed affect the housing markets by offsetting the commute costs versus the premium in home prices in locations closer to jobs. The reverse side of that is many of the inland empire housing developments will suffer more because people won’t chose to pay the higher commute price.

All that said, as the market levels off, housing prices away from urban centers will probably continue to stay low, and eventually that will bring people back into the center of California and other states.

Pearl answers