How Falling Gas Prices Help Sell More Real Estate

By
Real Estate Mortgage Broker with Universal Home Mortgage

For the 78th consecutive day, gas prices fell nationwide yesterday.  At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.

And although gas prices vary by locale, the cost of a fill-up is worthy of national news.

The main reason why national gas prices matter is because of something called the Wealth Effect -- people's tendency to spend more money when they have a perceived feeling of being worth more.

Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide -- the primary driver of the U.S. economy.

But more important than the Wealth Effect is the reverse Wealth Effect.  That's when consumers have a perceived feeling of being worth lessand their spending reflects it.  This past summer is a terrific example of it. 

Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy.  It follows, therefore, that retail sales figures plunged in September and October.  Once the election passed, however, and gas prices fell, a gentle optimism returned.

Not surprisingly, consumer confidence rose in November.

All of this matters to real estate because as Americans regain their confidence and feel more "wealthy", they will be more likely to make "move up" purchase, buy new home appliances, and take other actions that propel the economy forward. 

Oh, and mortgage rates trolling at 3-year lows certainly helps, too.

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Theresa Prim
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Kevin, may I add that falling gas prices allows more money for homeowners to make their mortgage payment?  It is great when they are in a good position to sell when they WANT to sell and not when they HAVE to sell.

December 04, 2008 07:51 PM
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