Gas Prices and Opportunities

Paul Krugman validates* what I’ve been saying to clients/readers/prospects for some time.

Any serious reduction in American driving will require more than this — it will mean changing how and where many of us live.

My belief is this – properties that are closer to urban cores – roughly defined as having a coffee shop/grocery store/park/gathering place – will appreciate at a greater rate than those that require more driving to get to said urban centers.

Using back-of-the-napkin math – if when gas costs five bucks a gallon –

If driving to the store/work/etc costs an additional ten to fifteen dollars for those properties not close to urban centers, and the properties the are close to urban centers are able to save that gas money – isn’t it reasonable to conclude that that theoretical savings of three to five hundred dollars a month would then be applicable to one’s mortgage payment?

I am seeing a contraction of the geographic area I service, and clients are now asking more and more about bikeabilty, walkability and public transport. Higher gas prices are likely to impact our business in fundamental ways – among them –

– Business models – buyers pay up front or do more legwork on their own. Hybrid Redfin models or derivations thereof may become more popular and prominent.

– Denser suburbs and fewer exurbs

– Increased taxes – property tax and sales tax – to increase infrastructure, thus affecting affordability

– Fewer Realtors and real estate agents as more discover that the Realtor pot of gold is harder to find.

– MLS’s may have to change their restrictions on neighborhood and area photos and videos – consumers (and Realtors!) want to see more than what is currently offered. If MLS’ want to remain the primary point of contact, they will have to adapt and provide more. Including or excluding properties without physically visiting properties will be more and more important.

– More boutique brokerages will emerge and thrive as the cost of doing business becomes too great for many of the bigger brokerages.

When we are looking back at this recession in five years with the benefit of hindsight, what opportunities will we be thankful we took advantage of? What opportunities will we wish we had seen and seized?

A question for the Virginia Realtors – are you seeing this trend happen now? Are you seeing your market area contract due to gas prices’ precipitous increase?

Could Realtors use this opportunity to advocate for alternative methods of transportation in new developments? Just a thought.

* Don’t shut down as soon as you see Paul Krugman’s name. Sure, the NYTimes has a unique slant, but that doesn’t necessarily mean the information presented in this article is not relevant, applicable and true.

The original article by Jim Duncan on 20 May 2008 on Agent Genius

Related reading:

Could Higher oil prices be a good thing?

High Gas prices are good

Downtown Real Estate Bypasses Housing Crisis: Gas Prices Are Making City Centers More Attractive

The Oil-to-Mortgage-Rates Chain Reaction

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8 Responses to Gas Prices and Opportunities

  1. On a slightly different angle, not only would high gas prices mean a change of where people live, but also how they live –specifically, what they want in a house.

    For example, telecommuters would want a dedicated office space, meaning that four-bedroom homes might be more popular, or that any home would need to be more wired. If you can’t get true high-speed Internet (we’re talking Fios, not cable), maybe you want to look elsewhere.

    I almost wrote that larger homes would be more popular in general, as people spend more time there, but I realized that higher energy costs mean higher costs to heat and cool. So smaller, energy-efficient houses might be a better bet.

    I best there are a lot of other things I’m not thinking of that would appeal to people confronted with rising energy costs. We’ll all have to keep them in mind.

  2. Julie Emery says:

    Jim has hit the nail on the head. I think every piece of his analysis is spot on.

    I’ve been blogging for at least a year and a half now about how what’s going on in the larger economy and particularly gas prices mean for the exurbs that I serve. These areas were overbuilt with the expectation that commuters would continue to flock here. Given what we’re now seeing for gas prices and where I think things are headed, I believe the commuters are, generally, gone for good. And, if that’s the case, how does this inventory get absorbed?

    I don’t think any of us have an answer for that yet. And, as long as that’s true, there is no turn around in sight.

    And, the other piece of this, which Andrew alluded to, is that the McMansions that were part of the overbuilding are going to be increasingly hard to sell. Even before the current energy crunch, demographic trends led me to believe that these were a very bad investment. What’s happening now only accelerates that.

    And, yes, I’m analyzing what this all means for my business. My business has been spread across several rural counties. The numbers clearly show that the bulk of the business is now well to the east of where I am. I live in a very rural area and have no interest in relocating to the suburbs. Do I work at concentrating my business in the county where I live? (Where there’s already 10 agents for every transaction that occurs?) Do we contemplate a move to an urban environment, both for business reasons and to lead mroe sustainable lives?

    I have more questions than answers at this point, but there are serious discussions about all of this taking place at our house.

    The real estate industry will surely change to deal with the new reality. The local market has already changed and will continue to do so. We can change or become the dinosaurs!

  3. Jeremy Hart says:

    Reposted from Agent Genius …

    Jim, this is an interesting question. In some ways, you and I work very similar markets … Charlottesville proper has an area of about 10 square miles, I think, and Blacksburg proper is about double that. In our area, commute has not been that big of an issue for most of my clients – 15 minutes and you can get to most areas of the Blacksburg/Christiansburg/Radford, and 20 minutes takes out just about out of the entire New River Valley.

    One thing I think the Townships will wish they had capitalized on is higher-density opportunities, like you suggest with the urban core idea. I think it’s something that rural areas like ours have missed out on, although Charlottesville seems to be ahead of the game among it’s peers. That’s one way I think our governments are going to have to adjust, not just in the short-term but for the long-term.

    Among the industry, I think we’re likely to see a reduction in agents … but I think it’d be interesting to see how membership has fluctuated within local, state and national associations during economic swings. What has the pattern tracked?

    I also agree that I think we’ll see some increase in boutique brokerages … didn’t we see a few in Arizona do this recently? :) I’m part of a large brokerage, the largest in the area in fact, and all I keep hearing about is that we need to find a new way to market. I can’t help but think that the brokerage is trying to scale back out of fear, but seems like this is the time we should be looking for new ways to adapt and prepare for new markets. Perhaps large brokerages just can’t move that quickly.

    I don’t know what the future holds, but I’m interested to see what comes of this. From trial comes opportunity.

  4. Tina Merritt says:

    I have really seen this being the case in Hampton Roads. Just last week, I showed a client the COST of living 45 miles from his place of employment. With the extra gas cost, he could have afforded about $15,000 more house closer to his employment base. The outskirts are definitely feeling the pinch here.

  5. I think the longer term trend will be newer town centers, telecommuting centers and other ways for employers who are based in big cities to take care of their employees. Homes within the beltway are a short commute into the District. Reston’s tech employment continues to grow, as does Reston.

    Telecommuting centers in Prince William, Stafford, Spotsylvania, Loudon and other counties will keep people and their money closer to home and also make those areas more desireable.

    Our pinch is not only what we’re experiencing because of the current gas bubble. Transportation itself is a bigger issue. New roads aren’t keeping pace with new employment and the end result will be the pushing west, south and north with employers themselves adapting to our local environment.

  6. Julie Emery says:

    I’d like to see the local governments, particularly in Fauquier and Culpeper addressing these issues now. New centers of employment will have to be created to attract new home buyers/residents. Culpeper is, in my opinion, slightly ahead of the curve on this one. They’re working on adding additional train service. There’s a new residential condo development slated for right next to the train depot downtown. This kind of thinking is what will help these communities grow and thrive long term.

  7. I am unable to deal with higher gas prices like an economist. I’m not even sure that an economist can tell us how to plan for higher gas prices. Who’s to say that gas won’t get back to $1.00 per gallon. – Many Realtors in the ’80s remember a 21% interest rate and felt we’d never see the rate drop under 10%, and we were wrong. So, its election time and anything can happen.

    What I want more than cheap energy is to be able to produce long range plans with accurate data. I want to know that this building will be heated for $1000 per month and not $4000 per month. I also want to know if fueling my car for $3000 last year will cost $5000 this year, and the cost of food which was $11,000 last year will cost $14,000 this year.

    NAR is currently doing a study on global warming. They want this to be a comprehensive study with “no stones left unturned.” Is VAR participating in this study? Should we participate? Should VARBuzz survey its members on certain issues and pass the results on to NAR? I got my first education in real estate by managing apartments. I have learned it is easier to fix a roof leak than a roof. I feel that doing further research on the effects of higher gas prices is warranted.

    For further information on the price of gas I found a chart that shows the price per gallon for the last 28-years. The link is pasted below:

    http://www.randomuseless.info/gasprice/gasprice.html

  8. aullman says:

    The price of fuel is causing a lot of people to seek out some means of cutting down on daily commutes. There is an opportunity here for entrepreneurs to provide facilities for workers who want to telecommute, but either do not have the facilities to work effectively at home, or simply do not feel comfortable working in their own home every day. Many of these workers would be more likely to telecommute if they could do so from a remote office located down the street from where they live. Telecommuters need reliable internet, a professional phone system (VOIP), and a real office away from their home, so they can get away from the distractions of home, and so they can leave work problems at work when the day ends. Employers would be more likely to support telecommuting efforts if they knew their employees had the facilities, infrastructure and were away from the distractions of the home.

    The Federal Government has created 17 telecommuting centers around Washington DC. There is an opportunity for entrepreneurs to open Remote Office Centers around the rest of the country. Remote Office Centers would lease offices to individuals from different companies out of a shared office center. The center would provide internet, a phone system, and simple professional offices. There is under utilized commercial space in the suburbs of most any city, which could easily be converted into Remote Office Centers. Internet access is easy, and VOIP systems are just as readily available. Advertising would be as easy as putting up a billboard near a heavy commuter traffic corridor. It would say: Tired of the commute? Save time and money by checking into a Remote Office Center near you.

    There is a web site for listing and searching for Remote Office Centers. The site is free for both searching and posting centers. The site lists facilities, shows a picture if available, and shows locations on a Google map. The site is: http://www.remoteofficecenters.com/

    Unless someone comes up with a magic way to make cars run a lot more efficiently, the only real solution is for people to drive less miles each day. Telecommuting is the simplest way to make a dent in the amount of fuel being consumed by this nation. If people do not want to work out of their home, they need to be provided with a place to work that is near their home. Remote Office Centers can provide the facilities to make telecommuting possible for a large percentage of office workers, and they can provide enterprising individuals with a new business opportunity. For those who already lease offices, all they would need to do is change their marketing and advertising. Others just need to furnish offices and provide internet/phone systems.

    A lot of this information and existing listings are available at: http://www.remoteofficecenters.com/

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