Gas Prices Hitting Home? I Don't Think So (Do The Math)

Wednesday, 25 Jun 2008

By: Diana Olick, Realty Check at CNBC.com

New home sales in May fell 2.5 percent, and everyone is now wondering if rising gas prices are adding fuel, so to speak, to the meltdown in housing. A big article in the New York Times today features a few families who claim it just isn't worth living in the suburbs anymore.

The drive now costs far more as do the utility bills to heat and cool the larger home. Cities are taking advantage by investing more money in metro and downtown amenities and everyone is flocking back to city-center. Home builder/developers who bet on the "ex-urbs" might as well have bet on Mars.

Hogwash. Sit down with a pencil and paper and calculate exactly how much more you are spending a week on gasoline as compared to what you spent five years ago. Say you drive 50 miles a day to and from your office even, which is 250 miles a week. Say you get 15 miles to the gallon on average. You're using about 17 gallons a week for your work commute. If you were paying two dollars a gallon five years ago that's $34/week. Now you're paying twice that, so it's $68/wk. If your suburban house is big, you probably have higher utility costs now too, but your home is likely pretty new, and more energy efficient.

Now let's talk about the city. Your property taxes will be higher. Your supermarket and restaurant costs will be higher. You will likely live in an older house that will leak hot/cold air like a sieve and require more repairs. Basic services like the dry cleaner, the tailor, the liquor store, the bagel bakery, will cost slightly more because they're all paying higher rent. Urban school systems, like here in DC, can't hold a candle to those nice sprawling green suburban schools, and you might feel forced to send your kids to private school (try $15-20,000/yr per kid).

If you work, which you probably do, since you're commuting so much, then you'll need after school activities for your kids, which will of course cost far more in an urban setting than out in the 'burbs. And since you're living in the city, you probably don't want your kids just "hanging out" because you don't have a big house or a big yard, and so they'll want to hang out somewhere you probably don't want them to be.

I could go on and on. The reason today's new home sales numbers are down has nothing to do with real gas prices. If anyone is opting for an urban home over a new development, it's either because they know they'll see better appreciation or because they have some psychological fear of energy prices that is not based on real numbers.