Lower Gas Prices and the Impact on Housing

By Ryan Dosen

 

Oil is under $50 per barrel, the AAA Fuel Gauge Report says that the national average gas price is almost down to $2 per gallon, and almost everyone is feeling better for it. According to AAA’s data, gas prices have been shaved by over one third in the past year, leaving more change in consumers’ pockets, and giving them more reason to be confident about the economy and their own futures. And as we’ve said time and time again, confident people buy stuff, including houses.

 

Household Savings

The U.S. Energy Information Administration (EIA) delivers a monthly short-term energy outlook that reports current energy prices and trends, and also forecasts future prices. The EIA’s most recent report from January 13, 2015 (when national gas prices at $2.14 per gallon), estimated that gas prices would average $2.16 per gallon for the first quarter, and $2.33 per gallon for all of 2015. Prices have fallen below the EIA’s forecast, but it is early and there is little certainty regarding the longer-term direction of gas prices.

Nevertheless, the EIA projects the average household to “spend about $750 less for gasoline in 2015 compared with last year because of lower prices.” The EIA forecasts that U.S. household gasoline expenditures in 2015 could be the lowest in 11 years.

 

Confident Consumers

Riding the wave of lower gas prices, the Conference Board’s Consumer Confidence Index increased in December to 92.6. This number is close to the seven-year high hit a few months ago. Lynn Franco, Director of Economic Indicators at The Conference Board, stated that “consumer confidence rebounded modestly in December, propelled by a considerably more favorable assessment of current economic and labor market conditions. As a result, the Present Situation Index is now at its highest level since February 2008 … Consumers were moderately less optimistic about the short-term outlook in December, but even so, they are more confident at year-end than they were at the beginning of the year.”

 

Impact on Housing

Scholastica (Gay) Cororaton, an economist with the National Association of Realtors (NAR), said last week on her blog that “lower oil prices mean lower inflation,” and that this will push down mortgage rates. Chris Flanagan, a mortgage-rate strategist at Bank of America Merrill Lynch, spoke of the connection between oil and mortgage rates last month as well. Flanagan noted that “the oil collapse of 2014” appeared to have been a “key driver” of lower interest rates. He also stated that “further oil price declines could lead the way to sub-3.5 percent mortgage rates.”

It would appear that lower gas prices are helping the housing market by not only boosting consumers’ confidence, but also by helping keep interest rates down (and homes more affordable). Confident consumers, with more cash at their disposal, will start buying more stuff. With interest rates down, and with the new government-backed programs designed to get more people home loans, stuff will probably include more houses.

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan Dosen for buyer or seller representation or for more perspective on the local and national real estate market by emailing rdosen@megillhomes.com or calling 610-399-0338. Please also visit The Wayne Megill Team blog at www.PAHomesAndRealEstate.com.

 

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

 

 

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.