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.

New Mortgages ... Rule!

Below are some details on the Fed's proposed new mortgage rules courtesy of Briefing.com:

• New final mortgage rules ban prepayment penalties if payment can rise in first 4 years.
• New rules create category of 'higher-priced mortgages' including virtually all subprime loans.
• Lenders must verify repayment ability from income, non-home assets for higher-priced mortgages.
• Lenders must assess repayment ability on highest scheduled payment in first 7 years of mortgage.
• Lenders must establish property tax, insurance escrow on higher-priced first-lien mortgages.
• Lenders may offer borrowers opportunity to cancel escrow account after one year.
• Creditors must provide estimate of mortgage costs, payment schedule,within 3 days of application

If mortgage regulators can enforce their new rules on "higher-priced mortgages," at least as well as they do for "high-cost mortgages," (which they actually do surprisingly well) this new category of home loan means one thing: don't bother applying for a mortgage unless you have nearly spotless credit and money in the bank.

And while many would argue this is a much needed change in the mortgage market, it does raise a few questions:

• Won't this further increase demand for rental units?
  
• Won't this force people to save if they want to own a home?
  
• Isn't money saved different than money spent?
  
• Where was this legislation in 2006, at the height of the boom, even when regulators knew what was going on?
  
• Why do regulators seem to focus so much on making new rules, rather than enforcing the old ones?
  
• If the mortgage market figured out how to get around the old, "high cost loan" limitations, won't it eventually work its way around these as well?