Real Estate Market Report: Fuel, Finance and home sales

Real Estate Market Report:  Fuel, Finance and home sales

Why higher gas prices DON’T stall real estate sales (or the recovery!)

We have all experienced sticker shock at the gas pumps.  How many of us have seen the price increases and thought, “My ___, I’m going to lose my job because of this!”, or even, “Now THIS is certainly going to stop my family from buying any soda pop this month!”. NONE.  At least, in the small statistical survey I informally conducted.  However, there is a 50% increase in the number of people in Kirkland that think I’ve lost a few more marbles.  From my brain pan.

According to GSE’s (A government-sponsored enterprise [GSE] is a financial services corporation created by the United States Congress to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent.)  most recent U.S. Economic and Housing Market Outlook,  Freddie Mac VP and chief economist Frank Nothaft looked at energy costs and their potential effects on the economic recovery.  The U.S. Department of Energy reported that gas prices averaged $3.84 per gallon on September 3, up about $0.50 over the past two months.

“Low mortgage rates  and a high degree of affordability have helped to energize the housing market recovery,” Nothaft said. “Through the first seven months of 2012 compared with the same period in 2011, home sales are up 8 percent, housing starts  have rebounded by 19 percent, and national house-price indexes have recorded a gain on a year-over-year basis. We anticipate this favorable interest-rate environment will remain at least through the end of this year.”

So Americans may be feeling pain at the pumps, but Freddie Mac doesn’t believe the recent increase in gas prices will have a huge impact on the economy.  Considering the many influences that abound with influence on the economy we can rest assured that although gas prices are great for inciting news alerts they actually have little effect on our financial outlook. We can revisit this if gas hits $10 per gallon this year.  Sowe are well on the way.

While rising energy costs can divert spending away from consumer goods, Nothaft said he isn’t worried.  “A fuel-price spike doesn’t pack the same punch it once used to in part because of more efficient use of energy,” Nothaft said.

Nothaft pointed to the country’s increased energy efficiency efforts in the last 50 years, which have led to fuel efficiency in passenger cars nearly doubling. In addition, homes built in the last decade are proven to have fuel costs about 30 percent lower than homes built before 1960.

Furthermore, Nothaft said he believes the fuel-price spike is unlikely to have an effect on monetary policy, allowing for an extended period of low interest rates,  which should in turn help energize the housing market.

In conjunction with the Federal efforts and the GSE’s accountability it appears all the builders spiking housing starts are more than adequately justified.  In the Eastside of King County, particularly in proximity to Lake Washington (to the foothills), most new construction has a market time around 4-6 days.  Not including pre-sales.  Especially since the most recent recession builders and developers have become much more conservative than in previous decades.  Yet many of them are, for all intents and purposes, going “all in” with their investment strategies.  Thus the increase in new-construction jobs (and their peripherals) and search-and-sell for vacant lots and lots with “scrapers” on them (low-value houses).

Does that read like a slowing economy?  Contractors spend more on gas than you and I can imagine.  Yet it still remains only one small aspect of the economic picture.  But much more newsworthy than the head-of-household construction worker getting back to work after being unemployed for a year.  You know she’s one happy carpenter, and her dependent kids and husband are equally happy.

A very popular daytime tv diva once said, “What you believe, you achieve”.  May or may not be totally viable, but we may just find it helps.

What happened to summer?  Hmmm.  Another topic.

PHil Leng
The Phil Leng Team
jl4pl

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