Tuesday, August 19, 2008

Do gas prices affect the suburbs more?

Distance equals Time plus Gas.

The suburbs have always been a little bit less expensive than the center of town – they kept building the outskirts of town further away, and people kept buying because the houses were more affordable.

This has been going on for the last 50 years. A new neighborhood is built "way out there", but people realize they can get a 4 bedroom home for the same price as a 3 bedroom, and they rationalize that the commute isn't all that bad either. Over time, the neighborhoods "way out there" build up all the necessary infrastructure, and become part of the town, while new neighborhoods are being built "way out there." Believe it or not, McCormick Ranch (Scottsdale) in the 70's, and Arrowhead Ranch (Glendale) in the 80's were considered "way out there" when they were built!

How much will the "new" gas prices affect this cycle?

Perception. Gas prices are high and going higher. Anyone who buys "way out there" is going to spend a fortune on gas. They're going to kick themselves for moving that far away, and they'll probably want to sell and move closer.

[caption id="" align="alignright" width="244" caption="gas seemed very affordable this weekend."][/caption]

Reality. If you add 10 miles each way to your commute, you'll drive 5,000 extra miles for the year. (assuming you commute 5 days a week, 50 weeks a year.) If your car gets 24 mpg, you'll need to buy 208 extra gallons of gas each year. At $4.25 per gallon, that's $884 per year, or $73.67 per month.

How does $73.67 per month translate into your monthly expenses? Well, you'd need to reduce your mortgage by $11,655 (at 6.5%) to offset the difference. One way to reduce your mortgage is to pay $12k less for the house in the suburbs you're thinking about buying. Another option is to carpool &/or telecommute to help offset the difference.

Will higher gas prices affect the suburbs? Maybe. But I don't think they'll be the nail in the suburbs' coffins anytime soon.

Your still doing business in the suburbs Realtor,

Chris Butterworth

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