By the Tank
Saturday, June 10, 2006
Higher gas prices are hitting the real estate market these days in ways both big and small.
First, there are the short-term effects. With gas at $3 a gallon, buyers are less willing to spend hours driving from one open house to another. Real estate agents wonder whether it makes sense to burn through a tank of gas taking prospective buyers or renters around to look at places they may find of little interest. Everyone is trying to make better use of the Internet to save money on gas.
Then there are the middle-term effects. Trying to rein in possible inflation resulting from energy costs, the Federal Reserve Board, which governs the supply of money, is raising interest rates. For the 17 percent of homeowners with adjustable-rate mortgages, that means higher mortgage payments, either now or soon. For the real estate industry, it means fewer buyers because fewer people can afford the monthly payments when interest rates are higher and because consumers have less to spend if gas prices are eating into their savings.
And then there are the big-picture questions. Real estate analysts, planners and car aficionados are debating whether the spike spells the doom of America's century-long love affair with the automobile and the suburbs that have arisen in concentric circles around the nation's major cities. Some housing experts predict that demand will fall for homes in the most distant locations, but others say that Americans will never give up their big houses with big lawns, no matter how high petroleum costs rise.
The first pinch comes right at the gas pump.
Even a house search can be expensive now. Nick Kuhn, a real estate agent with McEnearney Associates' Arlington office who works primarily in close-in suburbs in Northern Virginia, spends about $215 a month on gas for his Toyota Camry, up from about $108 one year ago. "Gas prices and congestion -- the longer you sit in your car, the more gas you use up," he said.
So he's making some changes in how he does business. He used to preview all the homes he planned to show prospective buyers so he could answer their questions and avoid wasting their time on homes they would be unlikely to purchase. Now he prescreens properties on the Internet first, to make sure they look good enough to visit. And then he uses a feature on the multiple-listing service Web site that allows him to map the quickest route from destination to destination to avoid wasting gas.
"I'm planning showings of houses more carefully so we look at houses in order so we don't need to backtrack a lot," Kuhn said. He has also changed the way he markets houses. When he writes a real estate advertisement, he is much more apt to highlight that a home is near a Metro line or that it is in walking distance to schools and shopping.
"Now that gasoline is more expensive, people are more aware of that," he said.
House hunters don't want to waste their time wandering around aimlessly now, either, and their searches are more likely to be targeted and take into account transportation issues, said David Howell, executive vice president of McEnearney Associates.
"It's having an effect on two levels -- it's having an impact on where people are looking to buy," Howell said, noting that his agents are seeing a surge of interest in homes in close-in locations on transit lines. "Also, because of the combination of congestion and gas prices, Realtors and purchasers are being more judicious about jumping in their cars just to take a look. Attendance at open houses is down, with more people previewing properties on the Internet."
Howell said many agents are more reluctant to drive might-be purchasers around weekend after weekend, particularly if people end up deciding to rent rather than buy. One of his agents, Howell said, spent the last three weekends driving a pair of prospective renters around Northern Virginia to look at houses to rent. She would have earned the typical commission on a rental property, generally about one-quarter of one month's rent, split between the agent and the real estate agency that employs her, or about $250 on a $2,000-a-month rental. At one point, the agent realized that gas costs would devour most of the money she made on the transaction -- but then she earned nothing at all because the people decided not to move. She told Howell she didn't think she would spend that much time and money on renters again.