We know that as energy prices rise, it saps strength from the economy because consumers have to use more of their income to pay for the cost of energy. In the past few months oil prices have risen to over $105.00 per barrel–and that was before Syrian crisis hit the headlines last week.
The price of oil has escaped the forefront of discussion this year because we have not seen gasoline prices spike at the same time. In the long run we know that higher oil prices will lead to higher gas prices as well as increased costs for other forms of energy. Our focus today is not on the short-term effects of energy with regard to the economy. Today our focus upon the long-term effects of higher energy prices on real estate. If you look at the real estate recovery we are experiencing more recently, the price of energy is a factor.
The present real estate recovery is uneven in many ways. Lower priced homes are hot and the luxury home market is not recovering at the same pace. Some states are hot while others are still languishing. Another trend shows that inner cities and close-in suburbs are doing better than outlying areas. It is here where we think energy prices are a factor.
We have reported previously that the Millennial Generation does not want long commutes. Many prefer to use mass transit or live walking distance from work. This has become an important factor in this decade because for a generation, inner cities have suffered as the suburbs boomed. Now the tide has turned in many cities. Will this trend continue? Any future spike in energy prices will certainly serve to reinforce this new trend. We think that this story bears watching with regard to the future of real estate.
Meanwhile, back to the present. This week comes the all-important jobs data which will make it an interesting back-to-work and back-to-school week. The most recent run-up in rates could be reinforced or reversed by employment data that surprises in either direction.
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