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Will Gas Prices Change the Marketability of Real Estate?

Think back several years.....as many as I can think of people that couldn't afford a certain area went a little further out. And bought where they could afford. Now what? Even if gas goes back down a little, I believe the greed of the Market, and the Oil Companies will never allow it to go back to what it was last year. The Pandora's Box has been opened, and we are paying the price....literally. So, what does this have to do with Real Estate?

Homes in Outlying areas

My primary Market, West Palm Springs also known as Whitewater, CA is about 20 minutes outside of 2 bigger cities.

A few years ago that 20 minutes didn't mean much. Nor did it mean much that there are no stores, no jobs, and no public transportation in the immediate area. You had to drive where ever you wanted/needed to go. And people were willing to drive in order to own a piece of the American Dream. Well, that was then, and this is now.

Now, many of the homes have gone into foreclosure. Many of the builders who were my best customers for buying land, stopped building more than a year ago. And many of the homes they built have been auctioned off for about half the price they originally were selling for. One of my Agents got a great deal on a new 4 bedroom, 2 bath home. It's fine for her because she works with me in that area, and her husband has a good job not too far away. For some people it is still desirable to live in the outlying areas.

But what about the families that moved to these areas in order to be able to own something, but have to drive to work? I have a listing in Sheldon, Missouri, in the country. It is a fantastic price.....3 bedrooms on almost 2 acres of land. Originally this seemed like a "steal" but if there are no jobs close to it, and you have to drive a distance into town...then that changes the Marketability of the Home. It has now become a unique property.

Both the Sheldon and Whitewater properties have the same issues of no jobs immediately in the area. And with gas prices skyrocketing....many people are opting for properties closer to town, or in town. Is this a reversal of the last several years? Are we going back to "city living"? And how do we Market this?

Whatever direction Real Estate goes....

We have to have a handle on the needs of our clients. If they need to drive a distance to work, then the new cost analysis of owning the home will have to be modified to include the annual expense of driving. Something that was taken for granted by many is now something to be seriously considered.
Sellers are in a different situation ~ not only are they currently competing with foreclosures, but now they have to competed with the high price of gas and how this has effected Buyers willingness to live further away from their jobs.
Showing property ~ I remember jumping in the car and driving 20 minutes to show properties at the drop of a hat. These were almost always "lookie loos" not pre-approved buyers. So this has changed, for land lots I do a lot more "talking on the phone" walking them through the area from one lot to the next.

Change ~ Roll with it, and learn from it......Real Estate and how we Market Outlying Properties might change, but the need for people to own homes won't :)

By: Kathy McGraw- CELLing Realty - and California Real Estate and Life Blog

Posted by Kathy McGraw, Riverside County CA Real Estate on 07/10/2008 11:14 AM

Comments (32)

marketing, whitewater ca, sheldon missouri, gas prices, real estate marketability, foreclosures

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32 Comments on Will Gas Prices Change the Marketability of Real Estate?

JUL

2008

Good post -- thanks for sharing your thoughts! I note in my area that people are selling their outlying homes, and moving back to "city neighbourhoods" -- partly costs of operating a car, and partly the lack of interest in "the commute".

It is changing areas that are further out in the northern area of the Twin Cities where I work. So I think its big for many people.

I think gas prices are influencing real estate, but just a little. We have to decrease our dependence on foreign oil and if it takes $4/gallon gas to get everyone on board, I guess I'll pay it. We were going in the wrong direction and now it's certainly a hot button issue.

I have a friend who bought in an area about 30 miles out of town. He paid $210,000 and the recent sales are in the under $100,000 range. no one who was stretching to buy at $200K can afford to put $4.50 gas in their tank 3-4 times a week.

I live and work in the Northern Virginia market, so we are seeing the same thing here; the outlying areas have definitely taken the brunt of the decline, while those properties closer in are faring much better. (Now, if we could get the media to understand the difference!)

I have long stressed the cost of commuting (not just financially, but emotionally/mentally/physically - it is a quality of life issue for many folks) as a factor in the home buying decision, even before gas went up to today's prices. After all, the interest paid on a mortgage is a tax deduction, while gas and wear and tear on an automobile are after tax expenses on a depreciating asset. Those houses in the outlying areas were not such a bargain, after all.

I think many have gotten away from the old adage in real estate of "location, location, location" - the properties people chose to buy in a hot market are not necessarily marketable today, for a number of reasons, not the least of which is the commute and the cost of gas.

Kathy, here in Texas sometimes you feel there is nothing close! I have to drive 15 miles just to get to downtown Fort Worth and I think nothing of it. However, I do think about what if I have to show a house way out in the country and how much gas it will take.

I had a beautiful listing that was an hour from Fort Worth to the town where it was listed and yet another 8 miles from THAT town. Beautiful country club area, but in the middle of nowhere. Unless you were retired it would have been a rough commute and a LOT of gas. Thought provoking post!

Love the photo, Kathy. WOW,

In my area the homes hit the hardest are those that are in the county but the farthest out. They have really taken a hit in prices falling.

Also builders in Ann Arbor are not getting money for spec houses, so only a few BIG builders are left.

Gas Prices are changing EVERYTHING. But like you said....something to think about.

Li- I hear you, and it is interesting to see what is really happening in different areas of the country. CA has higher gas prices than some, but if you take everything into consideration....bottom line is a persons expendable income has depleted in today's economy. And this affects purchasing power.

Chuck- Thanks for bringing your area in.....so are people moving closer to town? Think about the possibilities for Commercial Real Estate.....add a few more Mom and Pops like in the old days :) Or more mixed-use.

Rebecca- Thanks for sharing your opinion...being you're a lender it is another perspective. Since you work in Florida are a large percentage of your clients retired? Do they not care as much about the cost of commuting as LI stated? Just curious......

Bill- Unfortunately I think many of us are either in that situation ourselves, or know someone that is. I helped a family buy in the outlying area, and they were very happy. Everything was going well until an accident prevented the husband from working, and the wife couldn't find a job....gas prices, etc. They walked away from their home....and moved out of State.

Susan- you bring up some good points. I had forgotten about the emotional and physical aspects of long commutes.....(at least for this Post) so you are right, compound that with the dollar price and the cost really is too high for many people. Today's bargain is not the same as yesterdays by any stretch of the imagination......and I'm curious to see what direction we will go next.

Linda- Oh, I know that story....I would drive to the Salton Sea.....1 1/2 hours away, the Colorado River 3 hours away.....up past Los Angeles.....another 3 hours and not think twice about it. For me driving distances in Southern California was a given...but now?

I'll bet many of us will think twice about those properties like you have that is farther out. So, this is the point...someone will buy it, but how are you going to change your Marketing, or are you? Did a lot of people just drop off the targeted groups because of those high prices of gas and the commute?

Missy- thanks...my Agent took this picture from her property :) Like you our spec builders are gone...some are coming back now, so it will be interesting to see what happens. I am curious on how much the big builders have taken a hit?

Sally- Yep.....and we can sit around and complain or do something about it. Think back in History....we just get to tell those Granpa stories much earlier in life...you know when gas was 20 cents a gallon (actually was when I started driving) and all the other stories of what the "good ole days were".

Hey, and at least you live on an Island.....you could go around the whole Island in the time it takes me to get to Orange County in Rush Hour traffic :) :)

Kathy,

Do you think the internet anticipated rising gas prices when it gave access to consumers to preview listings!!! Thanks, Fran

Fran the Man.....you are quite the comic :) :) That really is an intriguing thought though......

The price of gas is affecting us all. It costs me 65 dollars to fill my car and on a good week that lasts a week. Often it does not. Thats 260 a month for me and about the same for Jay. 520.00 a month for gas...why that's a car payment.

Kathy ~ I think that you are absolutely correct. There are several mini-markets around the larger cities where I live that took a hard hit the day gas prices started to go up. I think that these markets will eventually recover, but only once the larger cities recover and price people out of town again. It is clearly a cycle of the real estate market.

Maybe -- people are certainly more conscious of how they use their cars. Buyers are investigating bus routes when looking for homes. May not buying a second home in a resort area that takes a lot of gas to get to. But a home that is over-priced in the center of town still won't sell!

hey Kathy, boy did I love that rainbow at the end of this day/beginning of evening work for me... it's raining outside, which I love, & I'm coming to this new space that I'm naming home. Like a new baby/a new idea... that grows on you (only not as fast, i think, cuz you're so in love with the baby even before its born... i guess that's not like apartment renting at all)... it's always about changes, isn't it? and knowing how to maneuver your boat around the bends--- which is why we can never see too far ahead, because it's forever curving, bending, spiraling, spherical, musical, lyrical Life that is a River, with lots and lots of rain---and a rainbow...

Kathy, you know...I'm shocked but I'm still getting a lot of drive-by traffic on my signage. Now I never would have thought that but I guess if you can afford to buy a property then you can afford to go look at it first! I always enjoy your posts. Have a great evening!

Later in the rain~Deb

I have begun referring to agents in other parts of the city. I think it is a viable alternative for a number of reasons:

As you mentioned, gas prices make it economically a good choice
I don't know those areas of town quite like I know my own backyard
Other agents may want to refer me their business in my geographical location

If I do take a client in another part of town, I try to combine that trip with something else. My husband works on the west side of town so at least I can have lunch with him if I'm out that way, etc.

I guess other options are buy a more fuel efficient car (SUV's are just so nice for taking families to look at homes though...am I whining now) or buy more Gartmore mutual funds!

Kathy, suburbs may not be as attractive with having to drive further out and Realtors will have to zero in on the targeted few houses to show without driving all over the place spending excess dollars on gas.

JUL

2008

Kathy - Titusville is small. We can pretty much go from one end to the other in 20 minutes. But we also sell property in other areas which could involve a 35-40 minute drive. I'm going to be pretty sure the buyers are serious before I jump in my car. I generally don't go anywhere until they've driven neighborhoods to the point of knowing where they want to live - for real! I feed them all the information they can handle until they know the right area for them. It seems to be working pretty well.

Did you get an Open Letter (email) yesterday from United Air asking the government to put back into effect, safeguards that were in place 70 years ago keeping oil trading in check? The jist was that the options traders might sell the same oil 20 times before it actually lands in the hands of the retailers. The letter said this can add as much as $30 to $60 a barrel, that the price of oil is damaging all aspects of our economy, and to put back restraints on this type of activity. I feel sooo sold out by our government. Greed will surely be our undoing!

I definitely believe it will unless public transportation is run to outlying cities.

I think I'll get myself a scooter and have my customers drive me around.

JUL

2008

I was about to comment on the rainbow, figuring that must mean something? Then I decided to read all the comments and see if anyone else noticed it it. One did. At least to comment on it, that is.

Petroleum is an issue, what isn't today. I think we might be paying Paul for having robbed Peter so often. It would be nice if all the mistakes we and the government have made over the last umteen years could be just forgiven and we could just move on. It seems that the Joker is coming to pay a visit and the debts are to be collected. Whew, that was deep, considering I am supposed to writing my own posts and commenting later.

Oh well, I saw this, read It, digested it, became momentarily involved by it, reflected on it and realized that this along with a whole lot of other things need to be put into perspective and the picture does not look so good in the short term.

I know that all of us are having a harder and harder time counseling our clients. At first we sucked it in and boldly hit em to get realistic. And realistic some got, others didn't . But we are getting a little weary trying to optimistic I think as we see so many things coming into play. It gets to be somewhat overwhelming.

So we try, rationalize this and try that and at the end of the day, we may save a few and still lose the many. But we try and remain optimistic that the mess is going to get cleaned up. I am beginning to see that there are no easy answers. There are as many on all the sides of the issue scratching their heads and wondering how did this get like this. A bunch of bad loans and the financial markets are falling apart.

I think there is more to the story. The subprime mess was an event that might have triggered the proverbial straw that broke the camel's back.

Out financial markets have been running crazy for a number of years and it is just too easy to say this is all about greed. What it looks more like was that a new game was established and the players were from some rather more conservative times that decided to take the risk. And to make the game more interesting, they attracted lots of foreign investors to play along and get a piece of the proverbial pie.

I think what wasn't understood in all this, was that instead of selling the pieces of same pie, lots of pies were made and they had this unlimited supply of them. While all along everyone was happy they got their piece first. As the many pieces were revealed, everyone now feels a little duped that the piece they got was not from the real original pie but the made up ones that kept the supply of pie pieces ( not from the original pie that was so good) looking bountiful. Now with all the worthless pieces of the pie, pies are out. No one wants the pie anymore.

Now we have agreement to give all these worthless pie pieces to the crows. So now we must eat crow or we will over run with them.

Oh and as to the original question of whether gas prices will change the marketability of real estate, probably. Along with a lot of other things.

Here is a scarry thought if Isreal bombs Iran we could see gas go to $9 to $10 gallon. Real Estate would probably stop selling for a while. Not to be negative.

Kathy, this is another reason why NY real estate has not been impacted like other states. we have great public transportation.

JUL

2008

I turned down a listing because it was 45 minutes away from my house. I wasn't going to drive that far to service a listing, no matter how good of a price or area it was in. Like you said, didn't want to have to show it to people who are just looking to make the seller happy.

Good post. I agree the price of gas has affected the price of homes.

Kathy - buyers in the St Petersburg area also went to more rural locations to find new, affordable homes, but many of them are now facing foreclosure since they can't pay the mortgage and the gas. For buyers, it's helpful to have a comparison of gas cost vs higher affordable price downtown.

Did you all see the story about the father and daughter in Arizona who switched houses and mortgages payments so that each could be closer to where they worked? I do think people will be taking distance from work inot consideration when they buy. Veronica

We are seeing this too and it is very rural here. Also seeing many companies offer flex schedules with 4-10hr day, weeks to their employees.

To All-I am finding so many of these answers to be very interesting......especially the one of the father and daughter trading houses. It looks like no matter what part of the country we live in, most of us are seeing the same issues.

JUL

2008

Hi Kathy,

Majority of my buyers are making sacrifices to live closer to town. They give up larger yard and larger square footage of the house. Sometimes settling for an older house. It is interesting to watch. The average gas price in Reno, NV is $4.10/gallon

Catherine

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