A King, A CEO and Gas Prices

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For those that are not aware, aside from being a professional writer, I am also a camera operator for various televison shows. One of the main shows that I shoot is Larry King Live. It is a great show and I have a lot of fun doing it. As I sit down to write today’s blog, I am several hours removed from filming this evening’s show. The guest today was the CEO of Chevron, David O’Reilly. He spent the hour talking about the high gas prices that is hitting all Americans in the pocket, rather hard I might add. As I drove home, I thought to myself, I wonder how these high gas prices have affected the housing market? I decided to do some research and actually blog about it. To no surprise, the gas prices have had a sizable effect on the real estate industry.

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According to www.builderonline.com gas prices have in fact played a large role in tanking the housing market. The article cites a new study called, “Driven to the Brink.” The study focused on five major metropolitan cities: Los Angeles, Chicago, Tampa, Pittsburgh and Oregon. It found that neighborhoods within three miles of the central business district held their home values better than neighborhoods that were ten miles further out. With these findings, it is no wonder that for many people it is becoming less and attractive to live in suburbs that are a considerable distance from their workplace. Economist Joe Cotright, of Impressa Inc. states, “The gas price spike popped the housing bubble.”It seems like the variables that affect the housing market are endless and know you can add yet another one to the list.

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  • Dominic

    I highly doubt the gas price spike had anything to do with popping the housing bubble, as Joe Cotright suggests. Prices simply rose higher than incomes could possibly make payments on, even taking into account fraudualant lending practices. The fraud would have needed to get more and more massive to have people with little income continuing to buy higher and higher priced homes. Gasoline has nothing to do with this fraud.

    I could see the price of gas as another reason that prices are declining so fast in the outlying areas, though.

    However, it is now obvious that oil prices are in a bubble of their own, maybe without the accompanying fraud (so far that we know). Prices are much higher than production costs and demand has not risen/supply fallen to the same degree as the percentage gain of oil prices. The percentage weakening of the dollar does not equate to the rise in oil also. So it is only a matter of time before the price of oil collapses too.

    It is just amazing that many analysts thought our housing market run-up was different, rationalizing fundamentals, and saying it was not a bubble. And now the same is being said of oil. Are we always doomed to repeat history?

  • http://orangecounty.redfin.com/blog/author/sylvia.walker Sylvia Walker

    I agree that the housing bubble was not caused by gas prices, but I think the the housing bubble and the gas price sudden increase are are working on different dynamics.

  • http://www.redfin.com Ellie at Redfin

    I disagree with Dominic. Gas prices and foreclosures may be related. A lot of subprime mortgages were written on new developments in outlying areas, meaning long commuted for the residents. But gas was cheap a few years ago. People taking those subprime loans were already on the edge of their finances. As the price of gas rose along with their mortgage payments, many couldn’t keep up. It’s not the only factor, but a big increase in a major living expense can’t be overlooked as contributing to foreclosures.

  • Brian

    Hey guys, thanks for the comments, it’s always appreciated. Hmmm, maybe I should start writing more controversial blogs. It seems to stir up a lot of interest. I am not here to really agree or disagree so much, but just put the information out there for you fine folks to ponder. With that being said, of course gas prices and the housing market have some connection, be it large or small. I just hope each one gets better soon.

  • http://orangecounty.redfin.com/blog/author/sylvia.walker Sylvia Walker

    You make some good points Ellie. The nexus between housing, land use and gas prices–a post just might be in the making here.

  • Brian

    Hmmm, I think a part 2 to this blog may be in order. I have never done a continuation blog, but this time I may do it.

  • Dominic

    Ellie,

    I am sure that gas prices and the deepening of the housing bubble bust are related but I believ that the housing bust was due even if gas prices held steady at 2004 prices. The gas prices have just added fuel to the fire.

    Bria, Thanks for a fine blog!