Falling fuel prices could spur housing demand

December 3rd, 2014

As fuel prices decline, potential homeowners may be encouraged to consider homes farther from urban cores.

Gas prices have fallen to levels that have not been seen for some time, and one economist said the trend could encourage more people to buy a home.

On Dec. 3, the national average gas price was $2.75, according to AAA’s Daily Fuel Gauge Report. To put that into perspective, the average was $3.26 the same time a year ago. Molly Boesel, CoreLogic senior economist, said the decline could be the key to more housing demand, as consumers have more financial incentive to look for housing outside of the urban core and commit to a longer commute.

Boesel examined data, which spanned from 1991 to August 2014, regarding gasoline prices and vehicle miles traveled (VMT) per capita. This information revealed consumers more often moved from urban cores and into larger, more expensive houses when gas prices were less than $2 per gallon. As gas prices went down, VMT went up, and vice versa.

Additionally, when comparing VMT to homeownership rates, the two variables had a positive relationship, meaning when one went up, so did the other. Both went up between 1994 and 2004 and went down between 2005 and 2010.

Are gas prices the only factor at play?
Falling fuel prices are helping consumers and the economy in many areas, according to The New York Times. The U.S. is expected to see multibillion dollar stimulus this holiday season as a result of discounted fuel from Saudi Arabia, putting more money in consumers’ pockets. This is especially beneficial for low- and middle-income Americans, the groups that led the mass exodus away from urban cores when gas prices were low, CoreLogic reported.

“If oil prices stay between $75 and $95 a barrel, we would see the kind of stimulus package that the Federal Reserve or Congress could never do,” Douglas Oberhelman, chief executive of heavy construction equipment manufacturer Caterpillar, according to the Times.

With the expected economic boost comes hope for increased home sales, but Boesel warns there are other factors that will affect whether current fuel prices will produce the same outcomes seen in earlier years.

“However, another factor that led to that sprawl was an environment of easy credit and low interest rates – and while interest rates today are low, credit is tighter than it was in the mid-2000s, making the decision of whether or not to move far from the urban core a very different calculation,” Boesel said.