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Location: Mars Hill, NC, United States

A small, highly personalized real estate firm specializing in mountain homes and land in greater Asheville.

Wednesday, December 17, 2008

Why Can't Real Estate Be Like Gasoline?

Sometimes, the impact of supply and demand on gasoline prices is sharp, quick, and unpleasant. Just think of the price spikes that are now almost routine after a Gulf hurricane hits the right places.

But wouldn't it be nice if supply and demand in real estate behaved just a little more like gasoline?

When Gas Prices Were Up...
For October, the latest month for which figures are available, The Wall Street Journal reports:
Americans continue to cut back on driving despite falling gasoline prices, new government data show, signaling what federal transportation officials believe is a permanent change in driving habits.
Like real estate markets, miles driven have been dropping all year. For the year ended October 31, the mileage numbers represent the steepest one year decline in since 1942. Now that's a notable benchmark.

During the summer of 2008, when gasoline prices were in full bloom, it was popular to look at real estate data and talk about the death of the suburbs, as Americans looked to purchase properties with shorter commutes.

With gasoline prices down, will properties outside of town become attractive again? We haven't seen it, but of course this question remains masked by larger economic issues.

But We Are Buying More Gasoline Now...
Consumption figures, (as opposed to miles driven), are released in a more timely fashion, and the stimulus of lower prices on gasoline volume has revealed itself. For the week ended December 5, Americans increased their gasoline purchases for the first time since April of this year.

In fact, CNN Money reported on Sunday, that gasoline prices have probably responded to this already, having risen for the past couple of days. This coming on the heels of 86 consecutive days of price decreases.

Oh would that demand in real estate reacted this quickly.

The Home Builders Wish They Were OPEC
The OPEC countries, like home builders have wrestled with strategies to cutback production in the face of falling consumption. Crude has fallen 30% since October, and has declined around $100/bbl from the peak.

This is no surprise. It's a rational response for producers of anything under such conditions, just take a look at housing starts for the most recent period. Housing production is 70% less than its peak. Imagine a 70% cutback in crude and gasoline production.

In Praise of Supply and Demand
No, real estate does not react in the same way as gasoline to supply, demand, and price. One is lightning, while the other is a glacier. It's mostly a good thing too.

It is no great revelation that since mid September, all of us have been under the influence of much larger issues than simple supply and demand in our local markets, but this too shall pass.

The fact remains that any participant in any market, even the most sophisticated futures traders, begin their analyses with supply and demand. We have often written that real estate is no different.

The more exotic factors like ARMs, Alt-A's, and Option ARM resets will eventually work through. There are key supply and demand benchmarks that work as buy or sell signals. It is supply and demand where we will keep our eyes.

Thanks for stopping by,
Black Bear Realty Website
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Blogger briefs said...

Featured your post on this week's Carnival of Real Estate at my blog:

Can you leave me your twitter profile so I can edit and add, I found most everyone else's

2:11 PM  

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