Oil prices have been falling hard in the past week. Barely more than a week ago, a barrel of oil was priced at over $145. This morning it was trading around $127 - a drop of 12.4%. That’s a huge decline in a short time.
But this is a real estate website, right? So here’s the connection:
The price of gas is the single most visible indicator of financial strain in the United States. Even though its statistically true that very few people have significantly changed their driving habits due to high gas prices, it would be untrue to say that those prices aren’t on the mind of virtually everyone.
I’m no commodities market “wizard”, but I do expect the price of oil to continue to fall. And as it does, the price of gas at the pumps will continue to decline. And as that happens, the spirits of American consumers will begin to slowly but surely rise.
How this relates to real estate is as follows: While the average consumer can reasonably say that their decision to be involved in the real estate market is a rational decision based on economics and not an emotional decision, the reality is that the scales begin to tip in favor of emotional involvement in the real estate buying process when there is the perception of improving economic conditions.
That’s one of the reasons the real estate boom happened to begin with - people thought the economy was great and they reflected that opinion in their real estate buying habits, even opting to over pay for their properties.
The more positive emotion that can be mustered in the real estate-buying public - even if that emotion is due to the lower cost of living from decreasing gas prices - the more likely people will be to stop allowing their real estate decisions to be ruled by fear and will instead act based on hope and the evidence of an improving economy. And that translates to more buying activity.
Summary - As consumer sentiment improves, the real estate market will follow along. And one of the biggest influences over consumer sentiment is the price of gas, which is now falling.
More signs of hope!
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3 Comments So Far»
You’re an incurable optimist. But I think you’re right.
Your assuming that as oil prices drop it will be reflected at the pump. In 2004, a barrel cost $30. Now its $127, a 425% increase.
But in 2004, we were paying $1.50 per gallon and now it’s at $4, a 275% increase. So if math serves me right, a gallon could be above $6 right now if it had the same increase in cost. What I am getting at is that we may see barrel cost go down but not necessarily at the pump. And while I agree with your assessment that consumer confidence does affect the housing market, the inflationary maneuvers of the government may have even more impact. Land and homes will do just fine once everyone realizes that the cost of everything is going up.
You are correct about the less than perfect correlation between oil and gas. But there’s stilla very high correlation that’s easy enough for simpletons like me to observe.
Thanks for your comments! — Bryan Ellis
Dear Bryan :
I don’t know much about oil, (though I see the increase in prices), and I am very pretty new to RE investing.
So, I can’t really say much about the topic.
Yet, one thing I can say,(and I shall) is the one thing I see here in your article.
You are a sweetheart, optimistic, positive and all about moving in the right direction to get rid of “roadblocks” and the like, to make your (and ours as far as I’m concerned) come true, to live a better life and to try, always try even after we fail, try again, even if everybody says ‘it’s not going to work’, you don’t listen, just keep believing that it’s possible because you believe in yourself. Besides, I’ll remember now, “everything is possible with God” …
So, I’m not trying to preach, just want to say thank you for your positive outlook and the encouragement you bring to people. Colon found the Americas when everybody else wouldn’t even set a foot in the water.
Way to go Bryan !!! God bless you, and thanks again
Patricia
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