High Gas Prices- its effect on the real estate business

By
Real Estate Agent with Berkshire Hathaway HomeServices New England Properties

I moved to Connecticut in October, 1973, just in time for the oil crisis.  The crisis was the result of an oil embargo by Opec member nations, plus Egypt and Syria, to punish those countries that had supported Israel, during the Yom Kippur War.

The immediate effect was not only a spike in prices, but a shortage of available gasoline, at the pumps.  "Filling up" became a carefully planned event.  If you had an odd-numbered license plate or a vanity plate, you could purchase gas on odd-numbered days.  Even-numbered plates could purchase on even-numbered days.  The 31st of the month was open to all.  In addition to knowing which day you could buy gas, you would also have to be prepared to wait in line for as long as two or three hours.

In February 1974, the government proposed Project Independence, a plan to make the United States energy independent.  In March, the embargo was ended by all the participating nations, except Libya.  Gasoline prices, which had averaged 35 to 38 cents/gallon, during the spring of 1973, surged to 55 cents/gallon, in June 1974.  With the lifting of the embargo and the rise in price, the gas shortage disappeared.  Apparently, so did our plan for energy independence. Prices spiked, again, in 1981, as a result of the Iran Iraq War, but it was not accompanied by a gas shortage. 

From the mid 1980's, until September 2003, the inflation adjusted price of crude oil was under $25/barrel.  After that, there was a steady rise, to just over $99/barrel, by Nov 2007.  During the first half of 2008, oil prices continually set record highs.  Prices touched an all time high of $147.27/barrel, on July 11,  Prices have abated, somewhat, and the national average for regular-grade gasoline is expected to average $3.84, in 2008.

 Gas Prices July 2008

Although average prices vary from state to state, one thing is certain.  Higher prices are here to stay.  Connecticut gas prices are the second highest, in the country, behind California.  Driving away from the pump, with a tab for $50, $60 or even $70 is taking a toll on everyone. 

Higher gasoline prices appear to be having an effect on how real estate business is being conducted.  Fewer agents are going out on Broker Tours.  Agents are coming into the office, less frequently. Many show up only when they have phone duty, need to file paperwork or attend a meeting.  Some agents are reluctant to service rental clients, instead referring them to the listing agent. Yes, I know, those renters may be next year's buyers, but this year's low ROI is the more immediate problem.

REALTORS® are more discerning about the buyers with whom they choose to work. Driving around with tire kickers is just too expensive.  In some cases, agents may be demanding that their buyers be pre-qualified, before getting in the car.  For sure, agents still have a fiduciary responsibility to do the best job possible, for their clients.  However, nowhere does it say they must work with every Tom, Dick and Harry.

Perhaps, we as agents will start to conduct our real estate activites, more like a business, which it is.  Certainly, the use of our cars is an integral part of our business.  We still need to service our listings, putting on keyboxes, hosting Open Houses, checking out new competitive listings and sometimes meeting with our homeowners, to review and counsel them.  We will continue to conduct town tours, for our relocation clients.  We obviously need to drive our buyers, to see the homes they want to visit. Perhaps, however, by honing our upfront interview skills, we can do a better job of selecting the homes to see and spend less time viewing inappropriate properties.   

Ultimately, if the cost of doing business becomes too high, our ranks may diminish.  What's happening in your market?

 

Copyright © 2008 Marilyn Katz, All Rights Reserved, Active Rain - High Gas Prices- its effect on the real estate business

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Marilyn Katz

      Marilyn Katz

    Berkshire Hathaway Homes Services New England Properties    
     203-429-1041
  Servings Westport, CT
  and the surrounding communities  

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Rainer
26,152
Jeff Johnson
On the Move - Louisville, KY
Proud To Be Your Realtor

In Louisville we have some of the highest priced gas in the country.  However last week it was 4.05 per gallon for regular and tonight it is down to 3.80!!!  It is really interesting how many more folks are taking public transportation.  It looks like things are turning around!

Jul 25, 2008 02:23 PM #1
Rainmaker
284,435
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

Jeff-  A price in the $3 range would seem like a bargain, in Connecticut.  It's amazing how we adjust to higher prices.

Jul 25, 2008 02:26 PM #2
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David M. Childress
Howard Hanna Real Estate Services - Akron, OH
I would love to be your Realtor® in Akron Ohio!

It has been tough here in the mid west also. I hate to show homes sometimes...But today I saw 3.73, what's going on?

Jul 25, 2008 02:26 PM #3
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Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

You definitely don't want to be taking around look lous right now at $60- $75 a tank.

Jul 25, 2008 02:33 PM #4
Rainmaker
284,435
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

David - Hopefully, prices will come down, but I don't expect a great decrease, any time soon.

Jul 25, 2008 02:33 PM #5
Rainer
16,808
Robert O'Haugherty
Fort Worth, TX

Looked down on driving a compact car...when I first got my real estate license and headed to Coldwell Banker in 2002, I bought a small Toyota Echo (32 to 38mpg).  Almost all of the agents had big SUVs and most figured I would not make it in the business, especially driving the "Zippy".  Now 7 years later, I still have the same Echo, paid for, still 32 to 38mpg, plenty of business under my cap and still going strong.  I saw a smart car the other day, my first, at a title company and I'm thinking that I might trade down again.  I even had an agent who wanted my car if I bought a smartie.   

Jul 25, 2008 03:02 PM #6
Rainmaker
284,435
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

Robert- Sounds like you're ahead of the game.  My "wheels" average 16 mpg, but at least the car is "paid for." The thought of buying a new car makes me cringe.  ;-)

Jul 25, 2008 03:08 PM #7
Rainer
274,551
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island

MARILYN - I wrote about this subject recently as it pertains to the effectiveness of open houses.  I agree that higher gas prices are here to stay.  Your point about this being a business hits the nail on the head.  There is no reason to take tire-kickers around.  And while many find rentals to be a low priority, there is an upside to renters too.  They are not as picky, usually much more motivated, and the process is much quicker.  While its true that the payout is less, the ROI is probably higher as there is less likely to be a dead deal because of financing or remorse.  Great post, Marilyn.

Jul 26, 2008 12:12 AM #8
Rainmaker
284,435
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

Adam- I think you're correct about working with renters but I still bet there will be more agents turning them down, in this high gas price environment.  The more experienced agents will probably be the ones smart enough to see the opportunity for a fast deal, as well as the long term advantage.

Jul 26, 2008 01:59 AM #9
Ambassador
1,480,908
Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

Hig gas prices gives us all an ice cream brain freeze.  We have to stop pause, and totally reevaluate those we chose to work with especially when they will not commit.  Sorry Charlie!

Jul 26, 2008 02:27 AM #10
Rainmaker
197,134
Kathy Anderson
HomeSmart - Surprise, AZ
Arizona Retirement Homes For Sale, Sun City Grand

A call I received while on vacation was the first time I stopped to really think about how I want to handle this "potential" client.  I need to qualify them a little better I think.

Jul 26, 2008 02:36 AM #11
Rainmaker
284,435
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

Jim- the combination of higher gas prices and buyers, reluctant to pull the trigger, calls for some careful decision making, on our part.

Kathy- we've all been told that we should qualify our "potential" clients.  Perhaps now, we will get better at doing so.

Jul 26, 2008 02:55 AM #12
Rainmaker
589,926
Chuck Willman UtahHomes.me
Utah Homes - Alpine, UT
Utah Homes

I had a friend who sold kool-aid and chewing gum to the people who waited in line to buy gas. I don't know how we'd deal with that again. I'm glad to see that there have been reactions to the high prices and that consumption dropped so much that the prices have begun to drop. When Exxon can make $1 billion per week in profit this last quarter you'd have to think that we're being squeezed here. Funny thing- stock holders, unhappy with Exxon's results (they expeceted more) unloaded a bit... bringing the stock price down a little.

Aug 02, 2008 04:30 AM #13
Rainmaker
284,435
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

Chuck-  I don't know if consumption dropped enough to bring prices down, or just the threat of much lower consumption did it.  I think a lot of the run up, in prices, was speculative.

Aug 02, 2008 06:08 AM #15
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