"Drive until you qualify" -- the gas-mortgage connection

Yes, more on gas prices. The big brain blog Calculated Risk agrees: the spike in gas prices is a big problem for exurban locales such as Temecula: "The combination of the housing bust plus high oil prices is hitting exurban towns like Temecula very hard."

CR links to a solid piece from Bloomberg exploring the gas-housing double whammy, and what it means for newer communities out on the fringe of big metro areas: "It was drive until you qualify'' for a mortgage, says Robert Lang, director of the Metropolitan Institute at Virginia Tech in Alexandria, Va. "You can't do that anymore. Your cost of transportation will spike too much.'"

But, and those of you who think I'm dead wrong about gas prices will enjoy this: The New York Times, also big in the brain department, has an interesting take on this: people in our region make relatively good incomes; gas, as a percentage of income, is relatively low in Southern California. The NYT's conclusion, expressed in this graphic: high gas prices will hit much harder in poor, rural areas such as Wilcox County, Ala.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo: Los Angeles Times

Comments

[IToldu2CashOut]

The real value of homes in Temecula and places like this is 50k to 150k depending on the quality of the home. This is what home values in places like Cleveland, Buffalo, and Pittsburg are typically worth and honestly those places have more to offer than places like Temecula. That home prices got as high as they did was just a craze brought on by a series of factors that will never come together again after this whole mess is sorted out.

The market will work all this stuff out by 2012 or so and then we can all go back to having a normal realistic view on the value of housing.

[Uncle Billy Climbs Mont Pelerin]

...and then there's the gas-maryjane connection:

http://tinyurl.com/5nzzf5

Check out the video. There's a fellow who justifies his $100k pot empire with the high price of gas (and student loans too, of course).

If we look into it, we'll probably find that communities that allow plenty of "growth" have lower rates of foreclosure.

[Michael Snyder]

As an outspoken proponent of highlighting the interconnection between the commodities & financial markets and real estate and an equally outspoken opponent of speculative "investment" I'm compelled to share this article from AP in its' entirety.

"RIYADH, Saudi Arabia (AP) - Saudi Arabia says it will call for a meeting of oil producing countries and consumers to discuss soaring oil prices and work to prevent unjustified rise in prices.

Information and Culture Minister Iyad Madani says the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future."

In a statement following the weekly Cabinet meeting, Monday, the minister said Saudi Arabia will also work to control "unwarranted and unnatural" price hikes.

He said that the current price of oil is unjustified."

Did you get that last line? As I've said before, this is the end result of the Fed's 180 day loans to "investment banks" outside their normal lending loop. Now we have the major Wall St' investment houses using loans funded by taxpayer dollars inflating yet another speculative bubble based on their own predictions.

It's hard to say what frustrates me more; the blatant market manipulation or the sublime stupidity of the herd of "investors" who believe it. Either way this last round of unmitigated greed/insanity will likely be the straw that finally breaks the economy's back.

[puckhead]

In the Sunday RE section of the LAT , it listed median home sale prices for many zip codes in Riverside and SB county at around $150-$200 sq ft. Does anyone know what the construction cost of building a new house is, especially with the price of building materials and commodities going up.

[MyLessThanPrimeBeef]

Calpers is in a partnership that owns 15,000 acres just outside Los Angeles and that partnership just filed for bankruptcy protection late Sunday, according to the Wall Street Journal.

[MyLessThanPrimeBeef]

Sorry, here is the link.

http://online.wsj.com/article/SB121298363815456607.
html?mod=mktw

[Cal]

The NYT graphic needs to take in account the price of shelter relative to income then account for gas, I bet it would look much different (and much closer to Mr. Viles POV for So Cal).

[Laker]

CAL,
very good point. Looking at their graph, it feels like gas price is nothing relative to income. HOWEVER,
In south Dakota, income is $16,000, 2 bedroom rents for $300, so disposable income is now about $13,000.
In LA income is $45,000, 2 bedroom rents for $1400 and disposable income is $28,000. Gas in cali is about 20% higher, now i guess the colors will look different in that NY Times map.

[Ragnar]

I read the NYTimes article also. We may just begin to see a cultural shift as more people move from rural towns to larger urban centers for better pay and less transportation costs. Finding cheap labor to work in rural areas may become much more difficult.

We may also see even more people living off the government as they will make more money and can largely skip transportation expenses because they are not working.

[dilbert dogbert]

puckhead,
A friend, a small builder, you know the guy who builds a couple of houses a year, told me that the big builders costs are under 100 and he, in our high cost area could do an ok job for 160 but a super job would be around 250. This is for the Woodside, Atherton, Palo Alto area.

[tealeaf]

puckhead & dilbert:

it's truly the dirt that sets the cost. i know - construction costs are high, but the fundamental value is in the land.

and raw land values fell of a cliff last year.

ask our friends at The Irvine Company, who own precious Newport Beach, Laguna, and Irvine dirt -- the builders have all but walked away from the contracts because land prices fell between 30 and 70%. And this is for the prime stuff...

google "Great Park El Toro" in the news section for a glimpse at how bad the situation can get.