By Fester
Trading space for time is not just the classic Russian defensive strategy. It is our settlement pattern.
Gas is a substitute for location. People buy and burn gas because they are unable or unwilling to buy a location. Suburbanization can be viewed through this lens as a means of trading expensive urban land for cheaper ring/fringe land. This trade has made sense for many people as the travel costs were assumed to be relatively low as roads are heavily subsidized and gasoline was not a significant deterrent.
People make their mortgage/purchase decisions based on total cost of ownership which includes the costs of living life and getting to and from work. Individuals who live closer to their job have, all else being equal, lower commuting costs. This allows them to shift commute expenditures to other expense categories, including housing. Living further out and thus increasing commute costs often lead to the trade-off of lower housing prices, all else being equal.
Trade-offs that made sense when gas was $1.80/gallon often do not make sense when gas was $3.00/gallon and make even less sense when it has just topped $4.00/gallon. Assuming home prices are smooth, which is a completely unreasonable assumption, significant drops in home values could be expected as the supportable house prices have to decline to meet the commute costs.
For instance an individual who lives 50 miles away from their job and drives a vehichle of the US standard fleet fuel efficiency of 26.3 miles per gallon would see their home value drop by $3,300 just by the increase of gas prices from $3.00/gallon as the planning assumption to $4.00/gallon. If the planning assumption was based on $1.80/gallon, the home will have lost $7,300 in value. This assumes local driving is equal no matter where one lives and the only change in driving patterns is the commute to and from work for 240 days a year. This is an unreasonable assumption as distant areas are less likely to have high density, multi-use zones where car trips can be combined by mulit-tasking or avoided entirely. These estimates are low estimates.
So people are getting squeezed in multiple directions now. Higher direct expenditures on gasoline are a squeeze on a tight budget, and the secondary impact of higher gas prices translating into lower home values squeezes any available equity cushion for people with good access to credit.
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