Gas Prices Threaten Housing Recovery?

Diplomatic conflict between Iran and Western political powers has caused Iran to shut off the flow of oil to many countries, which in turn has caused a spike …

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Diplomatic conflict between Iran and Western political powers has caused Iran to shut off the flow of oil to many countries, which in turn has caused a spike in gas prices in the U.S. Now, some experts are speculating that the new, higher gas prices may stifle a much-needed recovery in the real estate market. Many prospective homebuyers are also commuters, and an extended period of higher gas prices could easily impact the purchasing decisions of some, according to analysts. For more on this continue reading the following article from TheStreet.

I spent Sunday afternoon at a Toll Brothers neighborhood in Northern Virginia called "Dominion Valley." It’s a planned community about 45 miles from the heart of DC that sprung up in 2000 and has sold 2500 homes, with another 1,000 still planned.

My mission was to get a sense of buyer traffic as the President’s Day weekend unofficially kicks off the spring home selling season.

As I was driving back toward DC, I noticed the price of gas (for the cheap stuff) was $3.75 a gallon. Ouch. (They’re higher in other parts of the country)

That can’t be good for sales.

Some of the potential buyers I spoke with worried about the drive time, but hadn’t seem to give gas prices as much thought.

Many people who live in Dominion Valley commute into the city, or just outside to the Pentagon and surrounding contractor base in Crystal City. Commutes in this area are often long, but when gas prices spike they become more costly, too.

The sales center and model homes bustling with potential buyers. With a weather forecast for snow and the "National Sales Event" advertised by Toll Brothers was mostly discounts on upgrades, I was surprised to see a steady crowd. John Elcano, Toll’s VP for Virginia Sales, told me they’ve raised prices four times since October.

Several of the potential and actual buyers I spoke with were eager to move, one a from a condo in the same community, another a first time home buyer, and another who was downsizing from a bigger house with a bigger yard.

Scott Genburg and his wife, who live near Dominion Valley, already sold their existing house, without even putting it on the market. A realtor canvassed their neighborhood and they accepted the offer. So they ended up needing to buy something fast and bought a new home. But none of the folks I spoke with were looking for a bigger house with a longer commute, a stable of the boom times.

With the federal government a steady source of jobs, the Washington, DC, and Northern Virginia markets have shown resilience in the face of the great recession. Builders seem to be responding. Metrostudy reports that finished, vacant housing inventory rose more sharply than any other market it studies in the last quarter, up 17.7%.

At the same time, the inventory of existing homes for sale is low. Ken Croisetiere, who just got married, expressed frustration with the house hunting process "it feels like a great time to buy, but what we’re finding out is that the houses that appeal to us are not as abundant as we would like to find. Toll’s Elcano says, " people are relocating to the area, they can’t find a resale to move into so they’re moving more toward the new construction."

But will people still move to new construction in the exurbs if it cost $100 to keep the tank full on a weekly basis? ISI home building analyst Steve East says higher gas prices will impact builders, with a "modest effect" on the entry level market.

This article was republished with permission from TheStreet.

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