Gas prices and housing prices

Date posted: April 27, 2012

Paying for shelter and for transportation are two of the more important expenditures people make. Some economists are saying these two spending types are more interrelated than many might think. N.C. State University economist Mike Walden explains.

“Well, because they are tied together, obviously if you live in a rural area and your job is in the city, you’ve got to drive in for work. On the other hand, so you may be spending less money on your home because houses tend to be cheaper in rural areas, but you’re going to spend more driving to work.

“Conversely, if you live in the city and you’re close to work, not as high a commuting cost, but likely the houses or apartment is going to cost more. So these two are very much tied together.

“And there has been a couple of recent research reports that suggest that because of this tie, what’s happened to the housing market in particular has resulted from, for example, a rise in gas prices. When gas prices rose in the late 2000s — 2007, 2008 — what did that do? Well, that made houses in suburban areas and ex-urban areas more expensive, because it meant that people’s commute into town was costing them more. So one researcher thought that this actually triggered — or at least part of the trigger — to the decline of the housing market, because those suburban and ex-urban houses were not as valuable. People didn’t want to live [there]. They started selling. And that started the cascade downward.

“On the other end of the spectrum, though, people have found as we look at what’s happened to housing prices over the last couple of years, that houses that are located in cities that are close to places of work, they have not suffered as much in the housing crash. Their prices have been maintained much more than houses in far-flung places.

“So, this tie between commuting and house prices, I think, has always existed and [been] very important and may go some way to explain what’s happened to the broad housing market in recent years.”

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