Will Gas Prices Affect the Housing Market?

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In 2008, just as the housing boom went bust, gas spiked from $1 to the record price of $4 a gallon.

(That “high” price would be a bargain today, as the average price in California hovers around $5.38 at the pump and even in gas-producing states such as Oklahoma $3.56 is the norm.)

As the cost of their commutes zoomed up, many homeowners who strategically made the most of “driving to qualify” — trading a longer commute to get more for their money in the suburbs — were suddenly struck with buyer’s remorse.

Some doomsday forecasts warned suburban communities could become slums as Americans flocked back to cities.

Twenty-three years later, we’re again seeing historically high home prices and astronomical increases at the pump.

Thankfully, it’s not exactly deja vu. The lessons learned from that terrible crash have led to improvements in the practices of real estate companies, lenders, and consumers.

But the question remains: How do gas prices affect home buyers and sellers?

Not surprisingly, the answer depends on your household income, where you work and live, and your goals and priorities including whether you’re looking for a quick sale or considering a home as a long-term investment, etc.

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Buyers unlikely to be affected by higher gas prices

Because they have a lower usage rate of gasoline or access to greater resources that allows them to absorb cost-of-living increases, these individuals and families are unlikely to be affected by higher gas prices:

Established buyers with existing home equity and other resources

Typically, buyers who have a solid credit history, a fair amount of equity in a home they plan to sell or other financial resources don’t base buying decisions on the cost of gas.

For example, “Many buyers who downsize sell their previous home with a bunch of equity,” explains top-performing Tulsa, Oklahoma, real estate agent Luke Rentz, “so they’re able to pay cash for their next home.”

The market for vacation or second homes doesn’t usually see much of a change in demand based on gas prices. While the cost of travel has increased along with inflation, “A lot of the people who buy vacation homes are in your upper echelon of income producers,” says Luke Rentz. “They can afford to take the hit or pay a little bit additional for gas.”

Buyers who need to buy a home for relocation or other reasons

For example, after Oklahoma legalized marijuana in 2018, the state’s low cost of living and affordable home prices enticed several businesses in the industry and their employees to move from California and Colorado.

Besides relocation packages offered by their companies, some families may have benefited from selling their previous homes in a more expensive market. “Those buyers are unlikely to be deterred by gas prices from buying a home,” Rentz says.

Buyers who drive electric vehicles, work from home, or home school

Historically, a home’s proximity to work was a major consideration for many prospective home buyers.

While that feature remains important for essential workers who must go to a job site, that priority has changed for a significant number of buyers.

Between the Great Resignation, the work-at-home trend, and the small but significant number of electric vehicle owners, a greater number of Americans don’t need gas to get to work. So, they’re less vulnerable to changes in gas prices and may be able to allot more of the family’s budget to a mortgage payment.

In February 2022, approximately six in 10 workers reported their jobs can be mainly done from home.

In 2021, according to the U.S. Bureau of Labor Statistics, over 47 million Americans voluntarily quit their jobs — an unprecedented mass exit from the workforce.

In addition, according to Cox Automotive, the sales of electric vehicles rose 66% over the previous year. And between January and July 2022, shopping for EVs rose 73%.

The less time buyers spend in the car, the less the buyer may be concerned about gas prices.

Sellers who might be impacted by rising fuel prices

However, even if they’re working from home or commuting in an electric vehicle, the home’s proximity to the center of the family’s life — school, relatives, work, house of worship or recreational space, city center — may be an important consideration in any home purchase.

There are also sellers who may be impacted — negatively or positively — by high gas prices.

Sellers of suburban homes

In 2008, the rise in gas prices compounded the problems of the housing market, and home prices sank in the suburbs. However, those suburban homes that were close to public transportation actually maintained or increased in value.

That trend may be poised for a comeback.

With gas prices rising, the New York City subways, D.C.’s Metrorail, and San Francisco Bay Area’s BART recorded significant increases in ridership as early as March 2022.

Furthermore, even before gas prices surged, the National Association of Realtors’ (NAR’s) 2022 Home Buyers and Sellers Generational Trends Report showed that 32% of younger Millennials (ages 24 to 32) considered commuting costs to be the most important environmental feature.

Now, they can deploy online calculators to figure out real-time commuting costs almost instantaneously.

Regardless of whether or not the cost of driving to a major city is outrageous, walkability and proximity to public transportation, schools, libraries, groceries, shopping and other places of interest are always important factors in the desirability and marketability of suburban homes.

Sellers of urban homes or homes near the city center

In 2008, it was widely reported that suburban homes that commanded $550,000 at their peak were being listed for $350,000 — a 30% reduction in price.

However, while less likely to grab headlines, the median prices of homes inside the city quietly rose 3.5%. Buyers may be willing to pay a premium for homes close to or in town.

So, higher gas prices may indeed have a silver lining for city sellers.

Sellers of energy-efficient homes

In a recent NAR survey, 63% of Realtors® said promoting a home’s energy efficiency in listings was a very or somewhat valuable marketing tool.

In fact, NAR’s 2022 Home Buyers and Sellers Generational Trends Report found heating and cooling costs and windows/doors/siding were the most important environmental features for 30% of home buyers.

In states with higher heating oil and utility costs — brutal winters and sizzling summers — heating and cooling expenses might cause some buyers to balk at purchasing a bigger home.

Conversely, sellers’ homes that feature updated energy-efficient features that decrease cooling and heating costs have great potential to wow cost-conscious buyers.

Potential and current homeowners most likely to be impacted by gas prices

This year, Rentz, who works with over 80% more single-family homes than the average Tulsa agent, has yet to experience a direct correlation between gas prices and the housing market trends.

However, “because you drive by the numbers every single day,” he says, “changes in the price of gas is one of the easiest ways to gauge inflation.”

In addition, watching the cost of essentials such as food and gas rise, “feeds into the broader worry of where we’re moving as an economy and as a nation.”

The high price of gas and cost-of-living increases may not intimidate established or cash buyers from entering the housing market.

The buyers and sellers who are vulnerable to a spike in gas prices are ultimately those who are also most impacted by inflation including:

Low-income and first-time buyers

The market is definitely changing.

Rapidly rising mortgage rates and the country’s highest inflation in four decades have zapped the purchasing power of potential buyers.

However, Rentz says, “Gas and other price spikes have shifted many lower-income and first-time buyers into conservation mode,” he says “They’re cutting expenses and being more careful because there’s a little bit more economic uncertainty.”

Having nearly doubled from a year ago, the traditional 30-year fixed mortgage now hovers between 5% and 6% — the highest it’s been since 2009.

The result is fewer buyers are able to afford the home they want. Not surprisingly, by June 2022, mortgage applications fell 21% from the previous year.

Buyers seeking new construction and those currently under contract

Consumers are not alone in bearing the impact of inflation. Builders’ and contractors’ timelines and bottom lines have been affected as well.

Rentz now estimates the cost of all building materials has risen anywhere from 20% to 40%.

However, “The biggest expense now,” Rentz reveals, “is the actual labor.”

In addition, since the pandemic began, everything from appliances to windows has been in short supply and getting more expensive seemingly every day.

Since January 2021, the National Association of Home Builders reports price increases in:

• Asphalt (+131%)
• Drywall (+32%)
• Exterior paint (+49%)
• Interior paint (+33%)
• Ready-mix concrete (+14.0%)
• Steel mill products (+102%)
• Truck transportation of freight (+32%)

The 18-month price increase of each item represents a record high.

Since many builders write their own contracts, many times clients could be liable to pay increases or have their contracts renegotiated or even canceled or renegotiated.

Buyers or sellers of homes requiring major repairs or renovation

Whether you’re planning to make repairs on your own or hire a professional, the cost of labor and materials has increased due to a shortage of workers and products.

“Something many people don’t realize — building supplies are trucked in from different places,” says Rentz. “We’ve definitely seen an increase in both the cost of materials and the transportation.”

By June 2022, the cost to fill up the tank of a diesel truck had almost doubled over the prior year. For a big rig, that might total nearly $1,400.

Furthermore, because diesel inventory has fallen 22% below the five-year average, analysts predict prices to remain high longer than those of gasoline, which is starting to ease down.

“In the broader sense,” Rentz says, “the rise in gas prices has driven up the price of new builds and remodels, which makes everything feel more expensive.”

Residents of regions with historically high gas prices

Furthermore, those increases are amplified for families living in regions with few refineries.

Rentz himself recently relocated from California to Oklahoma.

In June, gas prices in the Sooner State rose from $2 to $4; but, in the Golden State, residents were paying $6.50 or $7 at the gas pump.

“Now, some California buyers have more of a decision to make with regards to how much time and money they’re going to end up spending on the commute if they buy a new home,” Rentz says.

Rev up your home search or sale with the right agent

Gas prices are only one indicator of inflation and rising costs in today’s complex and rapidly changing housing market.

The best way to decide whether now is the right time for your family to sell or buy a new home is to consult with an expert.

If you’re buying or selling a home and are concerned about the impacts of high gas prices, interest rates, or inflation, put a pro in the driver’s seat by partnering with a top-performing, experienced agent.

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