Falling Oil Prices and Real Estate

Oil at $146 per barrel gave us gasoline over  $4.00 a gallon in 2008.  Today I filled up at $1.49 per gallon and oil went to $26  barrel. Cool. Remember 1974 and the Arab oil embargo? Gas prices doubled to 55 cents a gallon. I looked this up, that 55 cents is $2.81 today. The $1.49 I paid today is equal to 29 cents in 1974.  Twenty nine cents! In 1974 I put a gallon of gas in a snowmobile for a quarter and I probably had an extra 3 or 4 quarters to spend on soda, candy, and maybe a burger.  I thought those days were over.

High oil prices cause a slowdown in production and delivery of goods. Anything we buy is impacted by the cost of fuel so prices of groceries, clothes, and toys cost more. Less goods and Less money to spend on anything other than gas, means less buyers in the stores but that’s OK, there are fewer employees needed to service those customers who will not be buying what they want and only what they need. Can we expect oil prices under $30 a barrel will translate into increased spending?  I think so.

OK, you can see I’m not an economist but I know $17.00 to fill up my car is better for me than $48. I’ve got $31 dollars to save or spend.  Effective Mortgage Company Blog explains how these low gas prices could be good for the housing market. Or, low gas prices might not be good for the housing market if you live in an area where oil production plays a big part in the local economy. Madison is not a big oil producing city. Shoot, we’re not even a big gas guzzling city with everyone driving a Prius, van pooling, taking the bus, or riding a bike.

Here’s where the economics become tricky. Apparently oil prices impact bond prices and bond prices move mortgage rates. We were told in December to expect rates to reach 5% by the fourth quarter of this year. If that happens the economists will have an explanation. Probably will have something to do with Greece, China, North Korea, or some uncertainty about the economy somewhere in the world.

This is what I know: There are historically few homes on the market, interest rates are low, home prices are up (simple supply and demand) and if you have a house to sell and want to buy another, you may need to park yourself at an extended stay motel or the house of a friend. If you can sell your house and not find one to buy you become, well, homeless. Just my opinion, expect to see people who want to sell stay put and that means fewer homes for the consumers to buy. If you can’t buy a house, I suppose you can take the extra cash and drive around the country for the summer, after all gas is only about a quarter a gallon. Maybe we’ll see the opening of drive-ins again, and jobs for car hops.