Adding Fuel to the Fire


I read an article from CNBC this week entitled “How Low Gas Prices Fuels the Housing Market.” The assumption from the title of the article is a combination of:

1. The homebuyer having more purchasing power from fuel savings, and
2. Lower construction costs due to cost savings of petroleum based products.

As mentioned in the article, Deutsche Bank estimates that a 23% decline in gas prices adds about $100 in monthly income for the average American, which translates to an 11% boost in purchasing power on a starter home. In addition, mortgage rates have fallen in response to lower oil prices, which can add an additional 7% purchasing power. The results are similar to a congress-issued stimulus package. The impact is especially significant for low and middle income Americans, who have been largely left behind by the slow economic recovery that began in the middle of 2009. Even as the job market has improved, most workers have received only modest wage increases. I would be speculating if I told you how Americans will spend or invest the newfound money they are saving from lower fuel prices but it’s hard to argue that this won’t in some way positively impact the housing market. The other half of the equation is the cost component. Many building materials are petroleum based and coupled with lower shipping costs, homebuilders — especially production builders — are poised for big savings, some of which will be passed on to the homebuyer.

To read the full article click here: