Gas prices and home prices

One of the things that makes economics interesting is that surprising connections can be found. A recent study, for example, identified a link between gas prices and home prices. NC State University economist Mike Walden explains.

“This is a very, very interesting study. The researchers looked at data from central Virginia on homes sold. Now, they controlled for all the factors that affect how much the house sells for. And the interesting linkage they found was that there is a negative relationship between gas prices and the price that a house sells for: For example, for every dollar increase in the per gallon price of gas, these researchers found that home prices fell by between $4,000 and $6,000.

“This was a very robust finding, and of course it raises the question of why — why this relationship?

“And I think there are two potential reasons: One, of course, is when gas prices go up that leaves less money for people to use for other things including buying homes. So disposable income, in economics lingo, goes down, therefore households have less money to bid for when they are buying a house so therefore houses don’t sell as much. So that’s one possibility. The second possibility that I think is a little more interesting … is the researchers speculated that real estate agents, when gas prices go up, don’t aggressively market homes as much because they are trying to conserve on fuel. So they are not showing homes to as many people. That means there’s not as much competition for those homes, which tends to lower the price.

“So if we can say there’s one good thing about higher gas prices it may be that they help homebuyers.”