The huge drop in gasoline prices is just the boost the housing market needs heading into 2015. Not only are they padding people’s pocketbooks, they’re fueling consumer confidence. That may already be translating into more home sales.
“Anything that impacts anyone’s monthly budget so significantly as the cost of gasoline will tend to make them feel better about moving up, buying a new home,” said Maggie Parker of Comstock Homes. “Our traffic is very high, and sales are quite good especially during the typically slow December season, so it has had a very positive impact on the confidence of our buyers.”
Parker, standing at one of her company’s construction sites in the D.C. suburb of Rockville, Maryland, said that while lower gas prices may juice overall home sales, she does not expect to see the so-called exurbs reinvigorated. The drive toward more dense urban cores is more for social reasons than economic ones.
The economics for home buying, however, are clear. Analysts at Deutsche Bank estimate that the 23 percent decline in gas prices adds about $100 in monthly income for the average American. That, in turn, translates to an 11 percent boost in purchasing power on a starter home. Mortgage rates have also fallen in response to lower oil prices, which the analysts say could add an additional 7 percent purchasing power.
“For most Americans it’s a huge tax break,” said Richard Dugas, CEO of Atlanta-based Pulte Homes. “If you think about the consumer confidence impact, the thing that really drives housing is how people feel, and when they have more money in their pocket they feel better.”
Dugas also said he is not concerned about the oil-heavy Texas housing market, where Pulte has a large footprint. He said the company is well-diversified and could take that local hit. The CEOs of both Pennsylvania-based Toll Bros and New Jersey-based K Hovnanian also expressed little concern about their Texas communities, in conference calls with analysts last week.
The Texas housing market has outshined the rest of the nation in recovery, with home prices in Houston and Dallas reaching record highs this year. While much of that is driven by employment in the energy sector, many nonenergy-related companies have moved either headquarters or workers into the state. Technology and financial services companies, in particular, have been moving workers to Texas, such as Charles Schwab and TD Ameritrade, and there are reports Google is eyeing a position there as well. State Farm is building a huge campus north of Dallas.
“Texas has an economic resiliency beyond energy that will help offset any significant downward movement in home prices for these markets over the next year,” said Stefan Hilts, a director at Fitch Ratings.
Home prices have jumped so high in Texas recently that Austin and Houston top Fitch’s list of the most over-valued housing markets in the nation. They expect prices to come down with the loss of energy-related jobs, but not enough to cause major damage in the market.
One savings that will favor bigger builders over smaller operators is in the cost of building-related products. Everything from PVC pipe to asphalt to shingles to paint—they are all petroleum-based. Lower oil prices will mean big savings for products manufacturers.
“Unfortunately we don’t expect to see that trickle down to us. As a local mid-Atlantic builder, we don’t have the huge volume to negotiate based on that price,” Comstock Homes’ Parker said.
Larger builders may be able to negotiate, however, especially if oil prices remain low for a long time.
“The products guys will charge whatever they can get away with, but to the extent their own costs aren’t going up as much I think, they will pass on better prices to the home builders, which maybe will allow them to build more homes at the median price,” said John Burns of John Burns Real Estate Consulting.