gasoline -vs- housing

[dividend]

A persistently high gasoline price may collapse the housing market. The basic premise for this comes from "the end of suburbia". While high interest rates may flush out the speculators and those with ARMs, the real deal that "panics" the housing market might be gasoline prices.

If we consider:

Months of high $ gasoline, say $4.00 (European average is about $5/g).
Demand > Supply. Supply is low.

We could have another 70s style oil shock. In that case, we would see long lines at the pump. While today we only have to take 5 minutes to stop in, fill up, and leave, in a low oil supply environment, people could wait hours on line. In many cases, pumps would shut down when all the oil was sold out. In some states, there are anti price-gouging laws that prevent pumps from raising prices more than once a day. That means as the supply/demand changes, price is artificially set. We could see supply disappear very quickly here.

How does this relate to housing?


The hypothesis is that people need to get to work. I think that people would be willing to pay $5/g to commute. Even $10/g. They’d pay up for it. But the supply problem is a static one. While Katrina only affected most of the US for a day or two in terms of a supply shock, a persistent problem would cause the problems stated above, preventing people from commuting. If there is no gas, people have to call out of work. People will get fired.

Here’s where people begin to sell their homes not to take a profit, but exodus because they have to – forced selling to be able to get to work. And here’s where a real liquidity problem could develop. Where there may be literally hundreds of sellers and no buyers. Especially those in the “outside” suburban regions far from the major hubs.

When people move closer to their place of work, we may actually see an "irrational exhuberance" top in bubble prices in the metropolitan areas, where people actually work, and a menacing crash in suburban residentials, not to mention commercials.


Oh yeah, and let’s not forget general price inflation due to high costs of transportation of goods, heating, etc...

Any comments/insights?

 

[ralph00]

Widespread gas lines occurred in the 70s because of bad economic policy by the Nixon and Carter administrations. Things like price controls, and windfall profits tax distorted the market clearing price of gas - kept it artificially low. When that happens, suppliers will want to supply less of it, and buyers will demand more of it ... a recipe for lines.

I'm not saying lines can't happen again. A supply disruption can certainly cause a line in certain parts of the country. Unless the government steps in and screws things up, there will be no widepsread lines. The price will rise enough that suppliers will want to supply as much as they can and buyers will demand less.

 

[lilboy716]

keep them up...

squeeze the shaky home "owners".

let the banks sell those forclosures for them.

stuck paying the difference between bank's sell price & the amount of the loan.

 

[independenceair]

I think there was something about an OPEC embargo in the 70's that grew weekly in retaliation to supporting Israel in a war against Egypt and others. After OPEC warned the U.S to stay out of the way President Nixon asked for financial aid for Israel- the Embargo got bigger.
There were price freezes, that causes shortages at various places- there is no incentive to get the supply at the place of shortage.
So far there is no indication of that repeating and lets hope that it doesn't
They've said several times that they had no intention of using the "oil weapon" .
Shortages or at present low inventories are partly due to lack of investment in refining and storage and not due to a shortage of crude Which OPEC has already said that it will make up for if something happens to supplies.
There is a threat but there is also some that play on the fears of others. My two cents- good night and good luck

 

[Alizar]

Don't forget that with telecommuting, many people can work from home if they have to.

My boss does not allow it now, but I am sure things would become much more leniant if people had no gas to get to work.

 

[Bob111]

Quote from Alizar:

Don't forget that with telecommuting, many people can work from home if they have to.

My boss does not allow it now, but I am sure things would become much more leniant if people had no gas to get to work.

good point. + i heard something about oil inventory is up to 7 years high.

 

[Chagi]

I sort of agree with the overall theory, but I don't feel that massive gasoline shortages are necessary for what you are describing. Why not instead consider a couple of possible outcomes of high(er) gas prices:

- housing prices drop in regions that require lengthy commutes, as people become less able to afford the high costs of commuting to work, and choose to relocate

- rising gas prices squeeze homeowners, specifically those that are already struggling to pay mortgages in a rising interest rate environment (the cliched straw effect)