Pricey Gas Leads to Lower Home Prices

A rise in gas prices can drive up the cost of everything from a gallon of milk to a cup of coffee. But it can reduce the cost of buying a home.

For every $1 increase in gas prices, home prices drop by $4,060, according to a working paper from faculty at Longwood University and Florida International University.

This effect is even more pronounced when a relatively inexperienced agent is handling the sale: The study finds that in such cases, a $1 rise in gas prices translates to a roughly $6,600 decline in house prices.

What accounts for this phenomenon? In part, says study author Bennie Waller, professor of finance and real estate at Longwood, high gas prices may lead agents to market properties less aggressively. Specifically, when prices are high, agents may try to minimize the miles they drive in showing homes.

Dr. Waller notes that gas prices influence many factors—such as disposable income and consumer sentiment—that also affect the housing market. But, he says, the fact that gas costs have a disproportionate effect on sales by inexperienced agents (defined as those working four years or fewer as an agent) indicates that a reluctance to run down their gas tanks in pursuit of a deal also plays a role.

A high gas price is “a fixed cost for all agents, but older agents can spread it out over lots of transactions, whereas younger, less experienced agents don’t have a lot of transactions to spread those fixed costs over,” he says.

Dr. Waller and his co-author, FIU professor Ken Johnson, looked at 17,122 homes listed for sale on a central Virginia MLS between 1999 and 2009, correlating this data with average monthly per gallon gas prices for Virginia as reported by the U.S. Department of Energy. Over the period studied, gas prices averaged $2.34 per gallon and ranged between a low of $1.11 and a high of $4.12.

Should sellers go to market before gas prices rise? No rush, says Timothy Hess, a petroleum markets analyst with the U.S. Energy Information Administration. According to agency projections, per gallon prices will average around $2.42 in 2015 and around $2.38 in 2016.

 

 

Adam Bonislawski
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s