A
few weeks ago I discussed the effect of higher oil prices on the economy. We
know that as energy prices rise, it saps strength from the economy because
consumers have to use more of their income to pay for the cost of energy. In
the past few months oil prices have risen to over $105.00 per barrel--and that
was before Syrian crisis hit the headlines last week. The price of oil has
escaped the forefront of discussion this year because we have not seen gasoline
prices spike at the same time. In the long run we know that higher oil prices
will lead to higher gas prices as well as increased costs for other forms of
energy. My focus today is not on the short-term effects of energy with regard
to the economy. Today our focus upon the long-term effects of higher energy
prices on real estate. If you look at the real estate recovery we are
experiencing more recently, the price of energy is a factor.
The
present real estate recovery is uneven in many ways. Lower priced homes are hot
and the luxury home market is not recovering at the same pace. Some states are
hot while others are still languishing. Another trend shows that inner cities
and close-in suburbs are doing better than outlying areas. It is here where we
think energy prices are a factor. We have reported previously that the
Millennial Generation does not want long commutes. Many prefer to use mass
transit or live walking distance from work. This has become an important factor
in this decade because for a generation, inner cities have suffered as the
suburbs boomed. Now the tide has turned in many cities. Will this trend
continue? Any future spike in energy prices will certainly serve to reinforce
this new trend. I think that this story bears watching with regard to the
future of real estate. Meanwhile, back to the present. This week comes the
all-important jobs data which will make it an interesting back-to-work and
back-to-school week. The most recent run-up in rates could be reinforced or
reversed by employment data that surprises in either direction.
Mike
Ervin
Senior
Mortgage Banker
NMLS # 282715
Cell:
650-766-8500
mike@mikeervin.com
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