Editor’s Note: Hal Cranmer has had a wild past. Born in India, he’s lived all over the world and started his working life as an Air Force Special Operations and Commercial airline pilot. After 9/11 brought him down from the clouds, he entered the corporate world and rose to the level of running a $36M machining plant. Yet from 2006 on, he caught the passion for real estate investing. He flipped a bunch of houses in Minneapolis and still owns several multifamily rentals there. Lately, he is into assisted living, and owns 5 assisted living homes in the Phoenix area. He loves to follow real estate trends, both locally and nationally.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Cranmer provides us with his own unique, lively and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out our other super-helpful Market News Updates. For now, enjoy...
From Hal Cranmer...
We’re well aware that oil and real estate are 2 different industries…
But is it true that oil prices may be affecting real estate?
Here’s the thing, if people pay more for gas, they won’t be too keen on a long commute.
According to authors Helen Neill and Adele Morris, it all boils down to the famous real estate mantra: location, location, location
When the authors tracked property prices in Clark County, Nevada, as the gas prices changed, they found out that there is a significant relationship between both industries.
During their study, the two ladies found prices of the properties located 24 minutes or more from the city of Las Vegas decreased by about $7,800 in the midst of rising oil prices. On the other hand, prices of properties closer to the city increased by about $5,600.
The data suggests that the public may factor in rising gas prices in their decision to purchase a home.
This may seem like a rash conclusion, but it’s important to know the parameters of the research to gain enough insight…
Neill and Morris also discovered that older neighborhoods, where there is a higher concentration of rich people, were unfazed by the change in oil prices. It turns out that fancy neighborhoods will always be attractive despite the change in the prices of oil.
Over the past 40 years, fuel efficiency drastically improved. They emphasized that fuel efficiency heightened by about 70% during the period 1975 to 2010.
As a result of fuel efficiency, and correcting for inflation, even if you drive more miles every year than you did in the past, you’d still spend less money on gasoline to pay for the additional distance.
Oil-Dependent Cities
It may seem odd, but there are cities that celebrate whenever gas prices increase. Houston is one of them. Real estate demand shoots up when the oil sector is booming.
Now with more pipelines going up, fracking becoming mainstream and refineries located near major metro areas, more cities are feeling the ‘boom effect’ of higher-priced gas.
It is a factor to consider when investing in a certain area.
The downside, of course, is when oil prices fall, these cities can be hit hard. The Dakotas really took it in the shorts when the bottom fell out of oil prices just in the past couple years. Things seem to be improving as gas prices move up.
If you’re planning to own rental property in oil-dependent cities, take a look at how the area fared during the last oil crash. Make sure you are liquid enough to be able to survive the next crash in prices. You know it will come.
What Do You Think?
What are your thoughts about the relationship between gas prices and real estate? Hit us up in the comments below.
Hal Cranmer
Hal Cranmer has had a wild past. Born in India, he’s lived all over the world and started his working life as an Air Force Special Operations and Commercial airline pilot. After 9/11 brought him down from the clouds, he entered the corporate world and rose to the level of running a $36M machining plant. Yet from 2006 on, he caught the passion for real estate investing. He flipped a bunch of houses in Minneapolis and still owns several multifamily rentals there. Lately, he is into assisted living, and owns 5 assisted living homes in the Phoenix area. He loves to follow real estate trends, both locally and nationally.