How Do Rising Gas Prices Affect the Housing Market? - If you've been to the pump recently, you know that gas prices are constantly rising. In fact, it seems every time you go to fill up the tank, you have to pay more than you did last time! While it's obvious that increased fuel costs affect every American's wallet, you may not realize that rising gas prices also affect other industries as well.
So, do they have a direct impact on the housing market? Economists say yes!
First, rising gas prices create anxiety and doubt about the future of the entire economy, including the real estate industry. Experts say that people see gas prices going up, and automatically assume that all other goods and services will increase in cost in the near future.
In fact, psychologists say the stress of paying more at the pump causes prospective homebuyers to be more cautious with their money. They begin to worry about their other expenses – wondering which ones will soon increase, and if they'll have the money to cover the difference. This makes them less likely to shop around (especially for big purchases), because they start to question the stability of the economy and housing market. After all, what's more long-term and expensive than buying a home?
So, something as simple as a few more cents per gallon at the pump can do damage to consumer confidence, which is never good when the economy is trying to recover from a recession.
But there’s also a more “common sense” approach to the issue.
Gas prices affect the housing market because people who are looking to purchase a new home are likely to limit their search to a much smaller area in an effort to save money. History shows that when gas prices are on the rise, the number of rural homes sold is far less than the number of homes sold in cities or near major work centers. Simply put, homeowners want to save money by limiting the amount of gas they use to get to work. There isn't much that a homebuyer can control when it comes to prices, but many realize that they can spend less money or gas and limit the wear and tear on their car if they live close to work.
And when fewer homes sell in rural areas, the construction industry suffers as well. If no one is buying the homes that builders have already completed, they don't start on new construction projects.
In fact, last year the Federal Reserve released a startling statistic. They said that a 10% increase in gas prices leads to a 10% decrease in construction after a 4-year time period in areas with a longer-than-average commute to work!
A reduction in housing construction affects other businesses, too. Companies that provide building supplies receive fewer orders, and restaurants and locally-owned businesses located further from a city's downtown area suffer because fewer homes are popping up near their stores.
Economists say businesses also suffer from higher gas prices because homeowners are less likely to spend money on dinner, drinks at the local pub, or a night at the movies when fuel costs increase. After all, Americans try to offset those added expenses by cutting back on entertainment. And, when those business owners have less money coming in, they have less money to spend on employees – meaning fewer people have steady paychecks to spend on things like new homes!
So while it may seem that prices at the pump and the housing market aren't connected, in reality, rising fuel costs affect many aspects of the economy, including your local housing market!
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