How's the Economy Affecting You?

Gas Prices and Real Estate

Real estate will not bottom out and start it's recovery until gas prices stabilize. Pretty drastic statement? No. Name one product who's price is not affected by higher gas prices. We've seen food prices rise substantially for a couple of different reasons and all of them having to do with the price of oil. More corn is going towards ethanol production driving up the price of corn. It costs more to ship produce to market. Fertilizer costs more because most of it is petroleum based. Plastics are also petroleum based, so guess what, they are more expensive. So if the cost to produce is rising, the cost to ship is rising and the containers they are sold in are rising, how can the price of food do anything but go up?

All right, so gas prices and food prices are going up. What does this have to do with real estate? Obviously, the price to build a home will also increase for the same reasons (transporting, materials, etc.). New construction usually attracts the move up buyer. If prices are higher, there will be less demand. More people will stay in their existing home and make due with what they have.

The Real Connection

Rising gas prices and with it rising food prices are shaking our confidence. I put $71 worth of gas in my car yesterday. That's at least $30 more than last year. And I fill up once a week. So that's $1500 more going towards gas. How about milk and eggs? Last year, everyday price on milk was probably $1.99 to $2.29. On sale for cheaper. Now that's the price on a loss leader sale. Don't get me started on eggs! They have more than doubled in the past year. Eggs used to be a "pick up item" for me. I'd buy them at whatever store I was shopping. Now, they are a "destination" item meaning that I go out of my way to find a store with a sale price.

If I'm spending this much more on food and gas, everyday necessities, am I going to go out and buy a new bigger home? Am I even going to go out and buy a new car or appliance? And thus, we have the trickle down affect.

People buying homes put money into Realtor's, mortgage loan officers, builders, attorneys, etc. pockets (look at your closing statement and you will see how many different industries earn money when one home is sold). We then go out and buy cars and expensive gadgets (the best cell phones, gps devices, home theaters, etc) putting money into other people's pockets. These people spend money and buy houses. When they buy the house, the cycle starts all over again.

$1200

How far is the stimulus plan going to help when our basic needs cost so much more? With $1200 dollars will you go buy a t.v. or will you just be able to afford gas and food for another month or two?

The price of oil is the key to the recovery. Or is the key finding alternative sources that will reduce our dependency on a limited resource? Will the price of oil finally force us to seriously look into sustainable energy sources? I hope so!