Crude oil price to influence real estate prices
An interesting thought have crossed my mind lately- Are there any unexpected side effects to surging in crude oil prices? I think there are. On of them might be an impact on real-estate prices. This may will have an impact in the medium to long run but it might be a strong impact non the less. Let me explain.
There has always been a tradeoff between living in a bigger house in the suburbs and commuting to work and between living in a smaller, more expensive place in a city center, and cutting on the commute. In the past - this trade off main issue was the save time, energy and improve quality of life. I believe that the recent surge in crude oil prices is going to change that. I think that with oil becoming more expensive by the year, transportation prices will soon become a major factor in the decision on where to live. This will increase demand for homes in city centers - which can eventually increase residential real estate prices.
Naturally, There are many other factors to this equation. Nevertheless, rising transportation prices will be an important player in future residence choice.
What do you think?
Roman
Tags: investment, macro, real estate
April 23rd, 2008 at 11:56 am
Your hypothesis sounds good though there are many factors that may cause a correlation between those prices. There are probably much stronger forces determining the housing prices. Moreover, this relation does not always exist. After the oil crises in the 70’s the oil prices were dropping while the housing prices kept rising. The same thing happens today.
April 23rd, 2008 at 12:01 pm
The simplest and most obvious factor is that both of these indices are a part of any consumer price index. Therefore, of course there will be a strong correlation between the two.
In my opinion, the lack in correlation that is happening now is due to strong factors - such as the sub-prime crisis - that are affecting housing prices in the U.S. I think that if you look into price indices for EU or Asia, you’ll find that prices haven’t gone down, but are rising steeply.