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July 31, 2014

Did High Gas Prices Fuel the Housing Crisis?

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Did High Gas Prices Fuel the Housing Crisis?

“High gasoline prices provided the trigger that burst the [housing] bubble,” says JunJie Wu, an Oregon State economist and one of the authors of a new study that blames high gas prices as the main culprit for the housing crisis that started in 2007. 

“The theory recognizes the role of subprime mortgages and lax lending practices as inflating the housing bubble,” Wu says, but adds that a spike in gas prices was the “trigger.” 

The new study, conducted by economists at University of California, Berkeley, and Oregon State University, attempts to pinpoint the cause of the housing crisis. The researchers say that while the housing market is blamed on initiating the 2007 financial crisis, researchers have found little consensus on what actually caused the housing crisis in the first place.

The researchers offer rising gas prices as the main culprit, noting that oil prices more than doubled between late 2006 and 2008 to $4.15 per gallon.

“The real estate mantra is ‘location, location, location,’” Wu says. “If you find yourself in a location that is far from work and transportation costs rise suddenly, that location can lower the value of your house.” 

The researchers note that mortgage default rates were highest in commuter areas. Also, they say that low-income households and suburban homes located away from business centers were the most vulnerable in the housing crunch. 

So will the recent rises in gas prices slow the recovery? Yes, say the researchers, “especially for communities tied to high transportation costs,” Wu says. 

Source: “Some Economists Say High Gas Prices Triggered Housing Crisis,” RISMedia (April 8, 2012)