HIGH GAS PRICES - DO THEY AFFECT HOME PRICES?
WITH AVERAGE PRICES FOR REGULAR GASOLINE EXCEEDING $4.00/GALLON IN MANY METRO AREAS, ARE HOMEBUYERS FAVORING CLOSER-IN CITY LOCATIONS OVER FARTHER-OUT SUBURBS?
I was nearly floored when I saw the price sign at a Shell Station yesterday afternoon - $4.35/gallon for regular unleaded!
No, this wasn't in some busy resort area, ratcheting up gas prices in advance of the Memorial Day holiday next weekend. It was at a normal, corner station, about six blocks away from my real estate office in the Lincoln Square Neighborhood of Chicago!
Six years ago, in May, 2002, according to GasBuddy.com, the Average Price for a Gallon of Regular Gas in the City of Chicago was $1.59! Today, on average - $4.07 - but far higher in many in-town locations (especially in the more depressed areas of Chicago, unfortunately, where options for stations to purchase gas are more limited).
As gas prices have continued their steady march through the stratosphere within the past year, with no signs of falling soon, many Americans are beginning, at last, to take serious notice. More fuel-efficient vehicles fetch a premium. Errands are combined. Vacations are more often contemplated closer to home.
But does the price of a gallon of gas actually impact home prices closer to a central-city business district, versus suburbs further away?
"CEO's for Cities," in a report published earlier in May by Joe Cortright, Economist, contends higher prices for gas played a major role in today's housing market sluggishness, in Chicago and elsewhere across the U.S. Joe's thoughts appear in “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs.” Also in the report, he points out that higher prices to fill the gas tank could have a far-lasting role on homebuyer preferences.
When gasoline prices rise, they reduce the amount of discretionary cash homebuyers would otherwise choose to apply to housing costs, or a home down payment. Many consumers, according to Cortright, might ditch distant suburban subdivisions in favor of properties in closer-in communities, or in the city itself.
Problem is - often times, the closer in to the city a family resides, the higher the price for the home. Here in Metro Chicago, the recent fall in housing prices affected both close-and and farther-away properties.
Cortright's research indicates home prices have fallen faster, as a percentage of their previous prices, in farther-out suburban communities. In Chicago, houses and condos within three miles of Downtown Chicago and The Loop have remained relatively stable over the first few months of 2008, while those in suburbs 13 or miles out from The Loop have fallen, on average, by 4 percent.
Out in Los Angeles, home prices fell 6% in closer-in communities, 10% on average, in areas further away.
In Tuscon AZ, where home prices have fallen substantially, on average, over the last twelve months, many expressed a desire to move closer to the city to reduce their gas expense, but those with families were concerned about the family-friendliness, and school-district quality, of closer-in neighborhoods. Back here in Chicago, vibrant local neighborhoods and close-in suburbs provide a desirable living environment and improving schools - but higher prices close-in keep many homebuyers continuing to search far-away suburban communities.
See Lauren Baier Kim's May 12 Post on the Wall Street Journal "Real Estate Developments" blog for further info and useful links.
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