The Psychology of $140 Barrel Oil

Home Builder with Artisan Custom Estates

It's well documented - with every passing day, oil prices seem to be setting a new record.  With the triple combo of an ever weakening dollar, insatiable demand in emerging markets, and the "speculation factor" from hedge funds and the like, many project there is no end in site to the price escalation.  While a recent conversation I had with an executive in a major domestic oil company revealed that the "industry insider" opinion is oil should be priced somewhere in the $70 a barrel range right now, I have a feeling that we are still far from seeing the top of this "super spike".

The short term psychological factor for the everyday consumer is undeniable.  Has anyone noticed there are less folks on the roads these days?  During mid-day this past Sunday on Alpharetta Highway (a main drag in town), traffic was so sparse, it almost seemed like Christmas Day.   An article I came across this week noted that 90% of Americans indicate that $4 a gallon gas causes serious financial hardship.  Not especially surprising given that wage growth is essentially flat, the net savings rate is less than zero and consumer debt is harder to come by in this environment than any in recent memory.  The slack from higher gas prices has to be picked up somewhere, and good old fashioned belt tightening seems to be the trick for most.

While it's easy enough to take a "gloom and doom" mentality in this enviornment, high gas prices is not all bad news.  As a society, we've certainly become overly dependent on oil, and with prices at their current level, expect to see major growth and funding for alternative energy sources, which is good for everyone (including the environment) in the long run.  Also, expect to see more fuel efficient decisions from the average consumer.  This probably includes a spike in car pooling, public transportation, telecommuting, moving away from the extended suburbs and closer to work, and more Sunday afternoons at home with the family instead of an extra road trip to the beach.

As for the impact on the residential real estate industry and the custom home market, the full impact is still to be determined.  Right now, high gas prices generally has the consumer in a foul mood, and not necessarily in a hurry to "spend more money".  For those who are paying attention however, events such as an "oil superspike" create demographic shifts over time.  Anytime there is a major demographic shift, there is most likely an opportunity during the shift and on the other side of it.  

Comments (1)

Karen Parker
Parker Holdings of Tampa Bay, LLC - Brandon, FL

I suppose it depends on your location as to whether you see less people on the roads. I live in the highly congested Tampa Bay area and if higher gas prices is what takes to clear up the roads down here, I'll pay them. I'd still spend less than sitting idling out on I275 during a 30 mile commute that takes 2 hours. Our housing market was already so badly damaged here that you cannot tell that higher gas prices is affecting it.

Jul 02, 2008 07:05 PM