Making the housing-gas price connection

The hometown paper makes the housing-gas price connection this morning, reporting that housing markets in outlying suburbs are suffering in part because of their remoteness: "Outlying areas like the Antelope Valley and the Inland Empire have long appealed to people who were willing to accept a burdensome commute for the chance to own a better house. But buyers are increasingly factoring gasoline costs into their purchase decisions, said Dan Griffith, a Rancho Cucamonga-based real estate agent."

More: "Christopher Leinberger of the Brookings Institution, a Washington think tank, says home values in these so-called exurbs may continue to languish long after urban markets begin to recover, thanks to higher gas costs.

"Under the old model we have lived with for the past 50 years, you could drive away from major employment concentrations until you could qualify for a house because cheap energy costs made it possible," Leinberger said. "Now as energy prices go up, the housing prices out there on the fringe take a major hit."

If the phrase "drive ... until you could qualify" rings a bell, it should. Bloomberg News recently quoted Robert Lang of the Metropolitan Institute at Virginia Tech describing the housing bubble in outlying suburbs, saying "it was drive until you qualify'' for a mortgage.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: LA Land

Comments

[Cal]

There were 2 kinds of qualifications.. the traditional 30 yr fixed document your income type.. which had to drive until you qualify because prices got so out of whack. And the financially ignorant or greedy who took the stated income loan and bought closer in.

[srla]

Nice theory from Mr. Leinberger, except here in SoCal, the math doesn't add up. Even if gas were to go up to $8 a gallon, an IE commuter's monthly gas bill would go up to somewhere between 800 and 1400 a month,

But even at the height of the bubble, when IE housing was at a premium, the differential in housing costs for comparable units between the IE and LA was far greater than 800-1400 a month.

With the price differential between outlying suburban and urban core housing as wide as it currently is, the monthly gas bill simply pales in comparison. While inflation will lead to more housing defaults, this pain will likely be felt equally in the exburbs and here in L.A.

[jb]

Gas will miraculously return to $3.

....right around election time.....

[Roger Moore]

@srla

Gas prices aren't the only factor, though. You also have to figure in other things, like added auto insurance and depreciation from a long commute. More importantly, you have to consider all the time those commuters are wasting on the road.

Those factors were the reason that housing prices were lower in the IE than in LA in the first place. When you start bumping up the price of gas, it shifts the analysis. A price difference that looked reasonable when gas was $1.50 a gallon starts looking quite unreasonable when it's $4.50 a gallon. The increase in the price of gas is just the straw that broke the camel's back.

[MyLessThanPrimeBeef]

The frontier of current scientific research is about the elusive Unified Peak Theory, which ties the Peak Oil Thoery with the Peak Chest Size Theory, which for those not familiar with the cutting egde concept, states that, contrary to thel lies propagated by Hollywood, chest size is not a renewable resource, but we will soon reach a peak and men, especially American men, who have for decades got off on the backs of women, will have to start looking for alternatives.

Some renegade scientists also argue vehemently the validity of Peak CEO Pay Theory, but so far, unfortunately they have not be able to secure any funding for that.

And the once popular Peak Congressperson Brain Theory has been proven bogus for a lack of evidence of brain in such persons. What doesn't exist can't peak, so goes the ironclad scientific logic.

[Laker]

Cal wrote: "...There were 2 kinds of qualifications.. the traditional 30 yr fixed document your income type.. which had to drive until you qualify because prices got so out of whack. And the financially ignorant or greedy who took the stated income loan and bought closer in...."

Cal, True, But the funny part is the both got screwed as their house is worth 40% less today than last year...and we are only half the way there...
The buyer with the stated income bought closer but can't afford his payment. The buyer that bought with fixed but 100 miles from his work, now needs to pay hundreds more in gas and his house is worth half...

Posted by:

[anonymous]

MLTPB:

What?

[MyLessThanPrimeBeef]

Anonymous, think about it, Peak Oil, Peak Housing, Peak Tomato, peak this, peak that. Coincidental? I think not.

[Cal]

Laker:"Cal, True, But the funny part is the both got screwed"

Reminds me of the movie War Games, after WOPR went over all the possible scenarios for winning global thermonuclear war.

"WOPR: A strange game. The only winning move is not to play. How about a nice game of chess? "

I think the long term winners will be those who chose not to play the game from 2003 on.

[MyLessThanPrimeBeef]

I see everyone here has top-secret clearance, so I suspose I will reveal this other theory: Peek Oil Theory which states, if you peek, there is oil - tankers filled with oil idling in the Persian Gulf, waiting for crude to hit $200 a barrel.

[tealeaf]

srla:

I think what is in play is the expectation of further increases. since buying a home is a long term decision, the threat of an increase is just as much as an inhibitor as the increase by itself.

we are seeing this now with SUVs. Even though they are discounted below the incremental price of gas, there is a black cloud based on the threat of increases (not to mention environmental impact).

The IE & Palmcaster are the "Ford Excursions" of housing.

Lots of space, cheap to procure, but costly over the long haul. Unattractive overall...

[D]

anonymous wrote:

MLTPB:

What?

That's my response to most that MLTPB writes but I must be stupid and have no sense of humor.

[Mont Pelerin Is Made of Math]

MLTPB: We've got to get you to a hollywood matchmaker, stat!

If you want to get trippy, consider this: Everything, including houses, is made of math. Mortgages I believe, but houses? And buyers? And angry renters? We're all made of math?

Well at least that's what this Swedish cosmologist who started off studying econ thinks:

http://tinyurl.com/4g4f8t

[MyLessThanPrimeBeef]

Mont Pelerin, interesting. But a 30 year, interest only mortgage is made of physics, not math.

This is how: you send a 30-yr, interest-only mortgage at the speed of light around the financial world, and it comes back, say 20 years later, guess what? It's still a 30-yr, interest-only mortgage, not a day older, as time slows down to a stand still, you know, according to relativity.

[Inland Empire]

Some will use carpools and vanpools or telecommute. But not everyone's job in located out the IE. Contrary to popular belief, there are some decent paying jobs in the IE making it unnecessary to commute far. And there are actually people here who own successful businesses. The one size fits all situations theory does not fill all.

[Nick]

OT, but...

Strange, I've heard the Peak Congressperson Brain Theory expressed as the inverse; that is, the Peak Congressperson Stupidity Theory. The theory, roughly stated, is that there's a fundamental limit to how stupid a congressperson can be, or how idiotic their proposals can be, before they are voted/laughed out of office. However, like the Peak Oil theory, every time we get to a new high point and people start thinking we're at the limit, it goes higher.

Recent examples:
- Rep Richardson is making housing bailout policies, is an irresponsible speculator, and got re-elected
- Hillary Clinton, in response to housing prices starting to become affordable, proposed the federal government changing all lending contracts to halt foreclosures
- Dodd, who openly took bribes from Countrywide, is proposing a $300 billion bailout for speculators and lenders (such as Countrywide)
- Sen Obama, in response to overwhelming evidence of the need to reform Social Security before the obligations are literally impossible to pay, pledged to continue paying the obligations at full value with no modifications

I'm convinced there's no Peak Stupidity...

[tealeaf]

IE:

The number of corp HQs in OC and LA dwarf IE.

It is quite clear when you look at traffic patterns on 15, 10, and 91 that there aren't enough jobs inland to support the number of households.

Sure there are civic and academic gigs, some small businesses, and some distribution or sales offices.

I struggled with this for some time (e.g. if there are so many homes with educated folks, why aren't there significant jobs?). Even followed John Husing's work for a while.

The issue is fundamentally that corporate execs don't want to live there. They want to live along the coast, and they don't want a far commute.

So HQ goes near the coast, and a remote location (read: outpost) is set up for access to lower cost labor inland.

I gave up trying to explain / hope / commute / make it work and simply moved some years ago and never looked back.

[dire straits]

I wonder if history will use rising oil prices as a scapegoat for the piercing of the housing bubble?
This would be similar to the airlines blaming 9/11 for their woes when many were in dire straits after tech executives stopped buying full fare business class "jollies" in early 2000.
As the song goes - "you get your money for nothing and your kicks for free"

[MyLessThanPrimeBeef]

Nick, I see you have a point there all of us can agree on as we await Republican samples from our Democratic bloggers to further validate the universal nature of your refutation of the Peak Stupidity Ttheory...

[E]

I'm willing to bet that the gas price effect on housing in remote areas will be nothing compared to the ARM resets in the "prime" areas over the next couple of years.

And you thought bailing out poor people in the "hood" was tough? Wait until the bottom 90% of the socio-economic spectrum realizes that they are going to be on the hook (with a *much* larger tab) to bail out the top 10%.

You think that we are being squeezed?

You haven't seen anything yet.

Try visiting a 2nd world city to see what our future will be like. I suggest Torreon, Mexico for starters.

[PeonInChief]

What's more likely is that many lower-wage jobs will move out of the central city, where housing prices are unaffordable for the vast majority, to the cheaper suburban areas. The exception will be direct services to the cities--baristas, retail clerks, waiters and the like. City residents will have to learn to put up with sketchy services, as transportation from cheaper suburbs will become more difficult and unreliable.

[Mike P.]

Let me guess.... ten years from now, history will be re-written by the NAR to say that peak gas prices caused the housing crash...

[silverfern]

Atlantic Monthly magazine recently had an article in which the author argues that exurbs are the next slums...and that McMansions won't fare nearly as well as houses built in the late 1800s to early 1900s in terms of the transition, because of the poorer construction materials.

The Next Slum?
BY CHRISTOPHER B. LEINBERGER
http://www.theatlantic.com/doc/200803/subprime
MARCH 2008 ATLANTIC MONTHLY
The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements.
***
Excerpt:
In the Franklin Reserve neighborhood of Elk Grove, California, south of Sacramento, the houses are nicer than those at Windy Ridge—many once sold for well over $500,000—but the phenomenon is the same. At the height of the boom, 10,000 new homes were built there in just four years. Now many are empty; renters of dubious character occupy others. Graffiti, broken windows, and other markers of decay have multiplied. Susan McDonald, president of the local residents’ association and an executive at a local bank, told the Associated Press, “There’s been gang activity. Things have really been changing, the last few years.”

[Nick]

Still OT followup...

Yeah, there are Plenty of examples of Republicans who also exemplify breaking down the glass ceiling of Peak Stupidity; I just picked the people who seemed the most dumb in recent memory. You could certainly also add Bush, for the genius of holding international prisoners for so long, without possibility of release and anything more than sham trials, that our Supreme Court was forced to step in and bestow the right of habius corpus on terrorists as a legally binding president... that's gotta rank up there. I just thought my other examples were to top idiots related to the housing correction and the economy, and thus closer to the blog topic generally speaking. :)

[yours truly, Johnny Dollar]

Intel from the Spy who stayed out in the cold
(though it was 107 degrees with 4 per cent
humidity (dew point 42 degrees) at 11am, Wednesday:
from our favourite Shell station at the Main Street exit
on the I-10 in Cabazon: posted 87 octane $5.19 point 9.
Also Peter, I enjoyed our virtual breakfast at
The Spa Hotel on North Palm Drive in Desert Hot Springs
yesterday morning; I thought it was great when you
fed "Charlie, the Roadrunner," a piece of your virtual sausage in the parking lot. Did the valet ever find your
car?
My people will call your people and we can do lunch--
maybe at the Sidewinder Cafe on Pierson Avenue, soon.