It isn't anything new to hear about how gas prices are going up and home sales are down however, have you ever wondered if a correlation between the two exists?
I can't tell you if one does or doesn't, I simply haven't seen any solid research to suggest that anyone has ever even asked the question however, lets take a look at what we know.
As long as our energy consumption revolves around petroleum we can expect prices to continue to rise. It's the simple law of supply and demand. It is widely accepted that the Earth has peaked in its production of petro however, our consumption has not. China, India and Russia are growing at alarming rates and, with that growth comes unprecedented consumption of petro. What you may not know, it took America 30+ years to build our interstate system. China is growing so quickly, they will have out paced us by 15 years. In other words, China is planning on building the same amount of roadways as America in half the time just to ease the amount of automobile congestion that country is seeing. To put it another way, take the rate of petro consumption America has seen in the last 30 years and split that same consumption in to just 15 years. The Earth just simply doesn't have enough oil.
Now look at our economy, oil prices effect everything. Jet fuel, automobile gasoline, lawn mowers, farming equipment, product transportation, you name it, it all uses petro. So if petro continues to rise, then prices on everything will continue to increase. A single gallon of gas is expected to be between 3.50 - 3.75 by end of 08. When prices skyrocket, out pacing the increases in standards of living then we see less and less buyers for big ticket items like homes.
With fewer and fewer buyers however, more and more housing inventory we know the law of supply and demand says prices will fall. Not to mention, our countries banks and lenders are going through a "credit crunch" meaning, the standards for lending have been raised. In short, banks and lenders are lending less money to fewer people to help curtail their losses in the recent (and still happening) fall of the sub-prime market. So now we are subtracting even more potential buyers and adding more homes in an already over crowded market.
On top of all this, we have the weakening dollar. Basically when the Fed cuts rates, our dollar has a harder time competing against other currencies. This doesn't seem important until you understand that America has a huge trading deficit. Basically we import more than we export. As a country, we have to pay increasingly expensive prices for the same amount and quality of products because our dollar doesn't have the same power over seas as it did yesterday.
I speculate that a correlation does exist and from looking back over the past 30 years of the National Association of Realtors records I believe we may see a lot more people watch their equity fly out the window while prices drop to 15-30 year record lows. All of this means, I don't believe the housing situation is going to turn around this year. I think we are going to see a buyers market extend well into the spring or summer of '09 if not later. I truly believe that until America steps up and sincerely makes an effort to change our energy consumption to something other than petro our economy will continually be at the mercies of foreign governments, international monetary policies, international regional instabilities, foreign dictatorships and weakening housing markets.
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