If you own any kind of vehicle then you’re more than aware that oil and gas prices have recently hit all-time highs. Immediately after Russia's invasion of Ukraine in February, the price of food and other necessities skyrocketed. This is because many countries have decided to put sanctions in place against Russian oil and gas shipments. It resulted in April’s gasoline prices in the United States increasing by 43 percent compared to the previous year.
This may not seem to have anything to do with real estate at first glance. However, the consequences might be much more significant than you would imagine. Here are some of the ways that higher gas prices will affect the real estate industry.
1. The relationship between gas and real estate
The housing market is influenced by the supply and demand of properties. Low-interest rates and a lack of housing supply have driven house prices to historic highs in recent months. Rents have climbed by 12.6% while property prices have risen by 19% in the same year.
When housing costs rise by double digits and salaries only grow at a 4.5% annual rate, it puts a lot of strain on those in the lower and medium income brackets. Add in the 7.9 percent and 38 percent increases in the cost of basic necessities like food and fuel and you have a clearer picture of the crisis at hand. Since fuel and oil costs have risen sharply, the consumers have less motivation to spend money on real estate.
2. Will interest rates rise?
The Federal Reserve raised interest rates by a quarter last week. However, will they continue to raise rates? It's the job of policymakers to act cautiously. They've been doing all they can to keep the housing market from crashing like it did in 2008. Although historically low-interest rates have helped to support the market, there are indicators that this stability is under threat. The best estimate is that although historically high rates are not returning, we will see additional increases.
3. Increasing housing prices
Regardless of volatile interest rates, it seems that real estate prices will continue to grow throughout the country. Even after a year of historic highs in 2021 which was a result of the global pandemic, 2022 currently seems to be on track to establish a slew of new records for home values.
It is obvious that the cost of construction materials and home goods will go up when gas prices rise, and so will the cost of building services. This is because almost all the steps of the supply chain use gas. As the gas prices grow the cost of these goods is affected too. Therefore, buying or even renovating a house will cost much more since everything from plywood to bathroom tiles has risen in price. Professionals you hire to perform maintenance on your house are going to have to boost their prices too since they will be paying substantially more on gas and materials.
Having said this, it will be more important than ever to make properties energy efficient. This is where high-quality insulation comes to play. If you’re interested to learn more about affordable insulation options, click here.
4. Suburbs could be affected
As gas prices continue to rise, demand for real estate in places with lengthy commutes, such as the suburbs, may decline. Though long commutes are less of a concern now than they were before, thanks to the possibility of remote work, this is still something to have in mind. We are likely to observe a direct link between high gas costs and weaker house demand.
5. Is proto-currency at risk?
All around the world, the US dollar is used to purchase gas and oil no matter where the purchase is made. This has been very beneficial for the US economy. However, some countries, such as China are pushing to have their own currency, the yuan, used for local gas purchases. If they were to succeed this could have a huge impact on the US economy and thus the housing market. Luckily, the leading economists don’t believe that this will happen in the near future. However, as someone who’s interested in the real estate industry, you should be aware of the risk.