WITH LOWER GAS PRICES - Where is the Housing Market Headed? How About Things in General?

Real Estate Agent with Dean's Team - Keller Williams Realty Partners Chicago IL

Hope you're enjoying your Sunday afternoon, folks!

At a family BBQ I attended last Summer, my cousin Bob came up to me and pulled me aside.  Never shy with his opinion on the Chicago Real Estate Market, Bob suggested -

"When the price of gas drops below $3.00 per gallon,"  Cousin Bob said.  "THAT'S when the Real Estate Market around here will start to recover!"

The price of a barrel of crude oil was near its all-time high of $145 back then - it has since fallen by more than half, to around $64, as of the close of the markets on Friday.  At the BBQ last Fourth of July, a gallon of regular gas cost $4.50/gallon in Chicago - it's about $3.35 right now.

But I feel the point he was trying to make was that the decline in the price of a gallon of gasoline would ease the economic fears of Americans, put a few more discretionary bucks back in their pockets, and get them to say, "OK, the economy will pull through this!  Let's look for our new house now!"

What has happened since Bob and I talked during the heat of the Chicago Summer?

A massive U.S. Housing Relief Bill - whose full effects are not yet known.  A $700 Billion Financial Rescue/Bailout Plan - whose full effects are not yet known.

Increasing unemployment.  Rising numbers of foreclosuresStill-sky-high levels of homes-for-sale inventory in many Metro Areas across the U.S., including Chicago.  Falling home prices.

But still no recovery immediately seen for the Housing Market!   Although, there are some signs of improvement, especially in the hardest-hit markets in California, Florida, Michigan, and Nevada - areas where the price balloon inflated most quickly, and popped just as swiftly, as prices here hit near the basement in recent weeks.

Indeed, the plunging price in a gallon of gasoline - to roughly $64 at the market close last Friday - has put more discretionary money in the pockets of American consumers.  Even the OPEC Cartel, cutting production by a significant 1.5 Million barrels of oil daily effective November 1st, hasn't stopped plummeting oil prices short term.  This, despite the fact that the 13 Member Nations of OPEC account for about one-third of the world's total supplies of crude oil.

According to Francisco Blach, Head of Commodities Research at Merrill Lynch in London, "It follows that there's going to be some spending effect."

Within the last few weeks, Oil Demand in the U.S. has dropped 10%, says the U.S Department of Transportation.  Last August, Americans drove 15 Billion fewer miles,  a drop of 5.6%, versus this time last year.   That's the largest single month decline, year over year, the agency has ever recorded!

Want more figures?  U.S. Drivers have logged 78 Billion fewer miles during the first 10 months of 2008, compared to the first 10 months of last year.  Many experts feel the price of gas surpassing $4.00 per gallon earlier this year has dramatically altered driving patterns - perhaps on a permanent basis! 

Julian Lee, Senior Energy Analyst with the Center for Global Energy Studies in London, observes, "We are seeing changes in habits. The sales of big gas-guzzling vehicles have collapsed. If we see that kind of change it becomes a much longer term issue with long-term demand destruction."

Ken Medlock, an Energy Fellow at the Baker Institute at Rice University in Houston TX, uses this simple formula -

"The average driver goes about 12,000 miles a year at 20 miles per gallon," says Medlock.  "If gasoline drops $1.50, the $900 that Joe Average Driver saves would amount to a big stimulus package."  Further, because we're already past the peak summer driving season right now, there isn't too much of an immediate reason right now to drive more simply because gas prices have fallen.

Ed Leamer, Director of the UCLA Anderson Forecast, says the current tumble in the price of gas could put as much as $250 Billion into the wallets of drivers.  He estimates second quarter personal spending for gasoline, fuel oil, and other energy was about $442 Billion, annualized.

Will the savings consumers enjoy translate into a rebounding housing market?

Apparently, not yet, as high for-sale inventory, coupled with tougher standards for approving most new mortgage loans and re-finances, have not been touched by dropping prices in the oil markets.

According to Medlock, lower oil prices will be good news for the U.S. Consumer, who would enjoy more disposable income - assuming they are still employed.  But alone, he continues, lower oil prices will not get the country out of the current Credit Crisis, or create a Housing Market rebound overnight.

See our post today via BlogChicagoHomes.com for more,as well as a link to a story and accompanying video from Vivienne Walt and her story on Time.com.



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Evelyn Panning
Property Connections Realty Inc. - Alturas, CA

Well, people are a little more up beat.  Just got through showing a house -- the prospective buyer is saying what so many are saying "I'm no in a hurry.  I don't want to make a mistake and buy before the bottom.  It's going to get worse."  I was showing a 1500 square foot home on a 7600 sf lot with an oversized detached 2 car garage for $128K.  You're kidding right?  It doesn't get much better than that. ~ Evelyn

Oct 26, 2008 10:30 AM #1
Tom Braatz Waukesha County Real Estate 262-377-1459
Coldwell Banker - Oconomowoc, WI
Waukesha County Realtor Real Estate agent. SOLD!


Cousin Bob has a great point though in that crude oil was one variable that contributed to consumer reluctance.


Tom Braatz

Oct 26, 2008 12:24 PM #2
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Dean Moss

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