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October 21, 2015

Pricey Gas Leads to Lower Home Prices

Pricey Gas Leads to Lower Home Prices

When the cost to fill a tank is high, real-estate agents won’t drive as far to market a property, concludes a paper by faculty at Longwood University and Florida Atlantic University

Oct. 21, 2015 10:29 a.m. ET

A rise in gas prices can drive up the cost of everything from a gallon of milk to a cup of coffee. But it can reduce the cost of buying a home.

For every $1 increase in gas prices, home prices drop by $4,060, according to a working paper from faculty at Longwood University and Florida Atlantic University.

This effect is even more pronounced when a relatively inexperienced agent is handling the sale: The study finds that in such cases, a $1 rise in gas prices translates to a roughly $6,600 decline in house prices.

What accounts for this phenomenon? In part, says study author Bennie Waller, professor of finance and real estate at Longwood, high gas prices may lead agents to market properties less aggressively. Specifically, when prices are high, agents may try to minimize the miles they drive in showing homes.

A high gas price is “a fixed cost for all agents, but older agents can spread it out over lots of transactions, whereas younger, less experienced agents don’t have a lot of transactions to spread those fixed costs over,” he says.

Dr. Waller and his co-author, FIU professor Ken Johnson, looked at 17,122 homes listed for sale on a central Virginia MLS between 1999 and 2009, correlating this data with average monthly per gallon gas prices for Virginia as reported by the U.S. Department of Energy. Over the period studied, gas prices averaged $2.34 per gallon and ranged between a low of $1.11 and a high of $4.12.

Should sellers go to market before gas prices rise? No rush, says Timothy Hess, a petroleum markets analyst with the U.S. Energy Information Administration. According to agency projections, per gallon prices will average around $2.42 in 2015 and around $2.38 in 2016.

 

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