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CoreLogic: Could Lower Energy Prices Stimulate Housing Demand?

by devteam December 2nd, 2014 | Share

Could lower energy costs translate into arnmore lively real estate market?  It seemsrnlogical – the less consumers must spend to keep their cars moving and theirrnhouses warm the more they can save toward or spend on owning a home.   CoreLogic Senior Economic Molly Boesel takes arndifferent approach to the question, one revolving around the cost of commuting,rnin an article in the company’s blog MarketrnPulse.</p

Boesel says that home heating oil pricesrnin the first week of November were 40 cents lower than they were at the samerntime in 2013 and that in the four weeks before her article was written thernaverage price of gasoline had fallen by almost 30 cents to just over $3 perrngallon, the lowest since the end of December 2010.  (After last Friday’s energy bloodbath AAA putsrnthe average price at $2.769).  However,rnshe sees only gasoline prices as having a direct impact on housing choices. </p

Gas prices remained under $2 per gallonrnfor the first 13 years she tracks in Figure 1 while per capital vehicle milesrntraveled (VMT) increased steadily.  Thosernmiles began to level off as gas prices surpassed $2 and then to decline as theyrnreached $3 per gallon.  After that mileagerndeclined steadily even as gas prices bounced around, surpassing $4 on onernoccasion and falling below $2 on another. rnVMT in August 2014 were at about the same levels as in 1994.  Boesel notes that some of the drop in drivingrncan be attributed to the extreme stress (and probably a drop in commuting duernto unemployment) of the financial crisis. </p

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Homeownership rates more or less paralleledrnVMT between 1994 and 2004.  During thisrnperiod VMT increased by 12 percent and homeownership rose by 5 percentage points.rn   Boesel says that, with gas prices under $2 somernof the increase in homeownership occurred as many homebuyers moved further fromrnthe urban core to buy larger and more expensive homes.  Then in 2005 the trend reversed and homeownershiprnas well as VMT has now fallen back to 1994 levels. </p

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So Boesel asks, if consumers believe the drop in gas prices is here for arnwhile, might it incentivize them to again migrate outside of urban cores?  She quotes a paper written in 2012 by Sexton,rnWu, and Zilberman which found that low fuel prices helped lead to urban sprawl,rnpushing the lowest income mortgage borrowers furthest out into the suburbs and wherernthey were the most vulnerable to the energy price spikes of 2008 and later.  However, she concludes, “Another major factorrnthat led to that sprawl was an environment of easy credit and low interestrnrates – and while interest rates today are low, credit is tighter than it wasrnin the mid-2000s, making the decision of whether or not to move far from thernurban core a very different calculation.”

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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