It's no question that gas prices are rising. When last summer, gas prices were around $3.00 a gallon, this summer they are close to or around $4.00 a gallon. It's been predicted that the price of gas will get close to $5 a gallon by 2012.
The rising cost of gas can also effect real estate in many ways. The entire economy is affected by higher gas prices. As the price for fuel to transport goods rises, so will the prices of these goods in stores. Food, clothes, hardware, luxury items, and pretty much any type of merchandise will rise in price as a result. Ultimately, the cost of living in general goes up and this is a general example of inflation and how it works.
Not only do goods and merchandise go up as this result, but mortgage companies tend to raise their interest rates to offset the higher expenses that they may be incurring. When interest rates go up however, we also see less buyers able to afford the higher rates. With the decrease in buyers, the demand for property goes down, and therefore property values decrease as well. It is also noticeable that properties that are located closer to industrial areas have a higher property value than houses in less densely populated areas. This can be attributed to the high cost of gas and the fact that a longer commute distance will require a higher gas expense for workers. This difference in property value is more greatly noticeable in times like now when gas prices are high.
It has been predicted that if gas prices continue to rise, that the quality of living in remote suburban areas will decrease. Areas that were once thriving neighborhoods have the potential of becoming slums as property values plummet from people moving closer to urban areas. This may lead to rising foreclosures in these areas and rising property values in areas closer to urban and industrial areas as more & more people move in to offset the costs of gas.
Arguably it can be said that higher gas costs keep a “bad element” out of higher income neighborhoods as that only households with high incomes can handle the high costs of gasoline. Gas station owners realize this and will try to make the most profit that they can if the people living there can afford it. It can not only be concluded that if a particular area has high gas prices that property values will decrease, but it can also be concluded that the residents of this neighborhood have such high incomes that the cost of gas is not an issue for them. It is entirely likely that most of these people are business owners and entrepreneurs that don't need to commute far to their jobs. Therefore, housing prices along with gas prices in these rare and expensive areas tend to stay in the higher areas.
It's fascinating how much of a difference in the economy a few dollars at the pump can make.
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