By the Tank
Gas Prices Change How Agents Sell and Where Buyers Look

By Kirstin Downey
Washington Post Staff Writer
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.

"It's not an issue of not wanting to provide a service, but it added an exclamation point to the question of whether it makes sense for an agent to go out and show rentals," Howell said.

High gas prices could affect real estate values in the Washington area, Stephen Fuller, director of the Center for Regional Analysis at George Mason University, told the Northern Virginia Association of Realtors last week. Prices could fall in "more remote housing," he said, while "inner-Beltway areas will benefit," especially areas with good amenities and good schools.

Higher energy prices are also helping push some would-be buyers out of the market. Lance McDaniel, 40, an environmental engineer with a wife, two children and a baby on the way, would seem to be an ideal homeowner candidate: stable employment with the Air National Guard, good credit and only a small amount of debt. And he's the adult son of a banker father who knows the value of a good investment.

Instead, McDaniel, who rents a house for $1,600 a month in far southern Charles County, the best price he could find at the time he was looking, spends much of his time thinking about how he will manage his energy bills. He drives his old Chrysler Sebring 100 miles a day round trip to his job at Andrews Air Force Base, and logs more time behind the wheel running the local Little League and as a volunteer firefighter. His wife drives her Ford Expedition 60 miles each day round trip to her job as a schoolteacher. Total monthly gasoline expense? Now as high as $800 a month, up from about $400 two years ago, he said.

Then there's the heating bill. The rental house uses heating oil and McDaniel is trying to decide if he should stock up for the winter now -- it would probably cost about $1,500 to fill the house's 500-gallon tank -- or whether it would make better sense to move. With these kinds of expenses, it is hard to see his way clear to buying a home anytime soon, even though he could get a VA loan.

"I'd give anything to live on a Metro line," McDaniel said on a recent afternoon, as he readied himself for the 50-mile drive home. "I'd give anything."

Higher interest rates, triggered in part by gas costs, are pricing others out of the market. The 1 percentage point increase in interest rates in the past year has knocked 3 million potential buyers out of the housing market, including about 300,000 to 350,000 the industry considers likely buyers, according to Lawrence Yun, an economist with the National Association of Realtors.

But other workers are moving out into the exurbs in search of less-expensive housing, planning to virtually eliminate their gas-use problem by switching to telecommuting. Stephen R. Dujack, editor of the Environmental Forum, published by the Environmental Law Institute, isn't going to bother going into work at 20th and L Streets NW in the District anymore. He's selling his home in Alexandria and moving to Charlottesville, into a house of equivalent size but with two acres of land instead of the one-third acre he has now. He will pocket the $130,000 difference in price, and work almost entirely out of his home.

"I'm not concerned about fuel costs at all," Dujack said. "The telecommuter is going to be the person least affected. . . . I almost don't care about the cost of gasoline."

But many workers can't telecommute, or at least not much, and many middle-income buyers have moved to the outer suburbs to find affordable housing that meets their expectations of the good life. James Howard Kunstler, author of "The Geography of Nowhere," a criticism of suburbanization in America, said that many outer-ring dwellers will face "widespread economic distress" as they struggle with elevated gas prices.

"A lot of people who bought McHouses in the distant hinterland of megaplexes are going to be very disappointed -- people who need to drive 32 miles to work in Denver, Minneapolis, Houston, Atlanta or Washington, D.C.," he said. Even so, he doubts that growth patterns will change anytime soon.

"The suburban pattern is so deeply embedded in our national mythology now that we will persist in these habits for quite a while, even though it will be economically suicidal."

Futurist and planning guru Joel Kotkin believes that employers will come to the aid of their workforces by moving jobs closer to where their employees live, and that high gas prices could exacerbate sprawl, not curtail it.

"History would say job movement will go further out, and the big difference is that people will change the kinds of cars they drive," Kotkin said. "If you go from a Ford Explorer to a Camry, you've wiped out the increase in gas prices."

Nicolas P. Retsinas, director of Harvard University's Joint Center for Housing Studies, doesn't foresee an end to far-flung development, either, but thinks the pace of outward momentum may slow.

"The fastest-growing areas in the U.S. are the farthest out," Retsinas said. "I don't think [gas prices] will reverse a century-old pattern of suburbanization, but it may slow as people become more aware of the cost of transportation as part of their housing cost. People will think twice before they go farther out."

High gas prices could also make high-density housing on transit lines more attractive, said Bob Curran, managing director and leading homebuilding analyst for Fitch Ratings. "It may be a boost for condos. . . . Reasonable people will take [gas prices] into account."