Gas Prices Effects On the Home

This post first appeared on Minyanville.

I came upon an interesting report out from Deutsche Bank on the effect high gas prices are having on home prices. Below are some highlights:

• Gas prices are up 167% in the last five years, 32% in the last year.
  
• Monthly gas expenditure is up to $519 in June '08 from $173 in June '02.
  
• $54,000 in home price purchasing power has been lost in the last five years; $22,000 in the last year alone (Inland Empire, CA is the worst at 46% lost in the last five years).
  
• As measured by increased monthly expenses and translated into mortgage payment terms, the impact of rising gas prices is equivalent to a 2.47% increase in mortgage rates over the last five years; 0.98% in the last year (Inland Empire is again the worst at a 4.35% effective increase over five years).
• Deutsche sees non-bubble areas like Texas and the South more exposed to gas price increases than bubble states, due to long commute distances and low relative home prices.
• Homebuilders are being negatively effected by this trend, particularly in developments far away from the city center.
• Builders will likely switch strategies and focus on urban "infill" and closer-in townhome projects.
• According to Deutsche, Meritage Homes (MTH), Ryland (RYL) and Lennar (LEN) have the most exposure to highly impacted areas; MDC Holdings (MDC), NVR (NVR) and Toll Brothers (TOL) have the lowest exposure.

House of the Day Results: Falling Over Fallbrook

Click here for details on this House of the Day

Value: $250,000
Projection: Depreciating

Fallbrook is located in Eastern San Diego County, just south of Temecula along Interstate 5. The city and the surrounding area are being adversely effected by the economic slowdown, as much of the growth in the area was due to new home construction. High gas prices are also weighing on consumer spending in an area dominated by commuters. As a result, home prices have fallen dramatically from their peak in late 2005 and continue to fall.

Our property is centrally located, making it more desirable than those on the outskirts of town. There are, however, many listings in the subject's immediate vicinity. The property also requires some "TLC," which indicates its condition is likely inferior to its neighbors. Listings in the area range from $273,900 - $549,000. Only three properties have sold in the area since April 15th, all of which are superior in quality to the subject.

515 Shady Glen road - aside from having a suspect address - is a similarly sized home, but in turn key condition. It sold for $265,000 on 6/19/08. The subject is on a slightly larger lot, but the inferior condition, combined with the weak local economy, high gas prices and an oversupply of houses place the value of the subject property at $250,000. Further declines are likely in the near future.