How will land sales be affected by high gasoline prices?
May 29, 2008 by Curtis Seltzer
US population growth in general and growing wealth in our top 25 percent are the fundamentals driving sales of second homes, land, and land investments in the country. Neither of those engines are likely to change.
But the countervailing trend is the probability of increasingly high energy prices, particularly for petroleum-based transportation fuels. The more it costs to drive to a weekend place, the fewer times the owners are likely to drive it. That’s the theory anyway. The related idea is that the high cost of fuel will discourage buyers from acquiring country property in the first place. This, if true, could depress sales and prices.
At the margins of the second-home and land market, I think $5/g gasoline will discourage purchases and trips. But at this price point–and higher, which I expect–consumers will start substituting fuel-efficient electric and hybrids for the SUV dinosaurs. The market is the self-selected upper one-third, or upper 20 to 25 percent of all taxpayers, so I doubt that the cost of a weekend trip rising from
$50 in gas to $100 will actually discourage sales to this group.
But I could be very wrong.
Let me hear your thoughts.
I think you are right, when it comes to larger and more recreational-type properties. The mini-farm concept is already feeling the pressure though. It may be hard to seperate that segment that are not looking due to gas prices from the ones that are out of the market becuase of the residential downward pressure. Mini-farms are much more tied to typical residential real estate.
I am afraid we are seeing some of the pressures of higher gas prices in our area. We are just outside of Raleigh,NC. We offer homes with acreage and raw land. Our wealthier clients seek weekend retreats and mini-farms to get away from the urban hustle. Higher gas prices are having an impact. I just hope it settles down and prehaps if airfares continue to rise people will realize that there are some excellent get-aways in their own back yards.
I agree that the wealthier market might not quite be discouraged by high gas-prices, but recreational land and country property use more energy and gas than just driving there. Often times gas is needed to power boats, four-wheelers, ATV’s and other, more necessary equipment to maintain the land. So obviously, all of that cost adds up. Luckily predictions have been made that prices will peak this June: (http://www.nytimes.com/2008/05/07/business/07oil.html). Overall, with our company we’ve seen that the pressure is really on the landowners. So this produces a need to sell. Good for us! Good for buyers! In agreement with Mr. Seltzer, the folks we are selling these recreational properties to had money, have money, and will continue to do so. Higher gas prices upset them a little, but it doesn’t change their behavior. It will be interesting to look at things a year from now. I think we’ll be able to make a more accurate observation about the effects of higher gas prices. Thanks for opening up this dialogue. I believe it’s on everyone’s mind.
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I did a Country Real Estate Column this week that takes off on this issue, of how will $8 gas–the current European price–affect us. We are an economy and a lifestyle built on relatively cheap transportation fuel. We do long commutes. We have lots of internal-combustion engines that use gasoline or diesel. Our housing patterns and recreational choices all depend on relatively cheap transportation fuel.
I don’t think $4 gas is a bubble. I think it’s all of us getting caught up to the new reality. The world wants oil increasingly faster than we can supply it. Oil, like coffee in a cup, will run out, sooner or later even if we drill everywhere we can.
My sense of this is that it will depopulate the long-commute suburbs, but
keep land beyond them in play more as first homes than seconds. The
traditional sprawled suburbs might stay in the game if surburbanites go to electric or hybrids, but I think out here will prove cheaper than close in.
I would think about pitching second homes as first homes to those who
can adapt their lives to making a living from out here. As Ashlie David said, the folks who still have money aren’t going to back themselves out of what they want–particularly investment-quality land. If there’s a softness among buyers, it’s the classic second homer who is being squeezed from all sides, and sees a second home as a discretionary choice that can be deferred or forgotten. See if buyers such as these can see a “second home” now as essentially a transition to a first home in a few years–when things get worse.
Thoughts?
When my parents retired to the country lifestyle, they had a couple of things in mind: 1) no neighbors in sight of their home, 2) to get in touch with the beauty and serenity of nature and 3) a reasonable drive to amenities and to get supplies. Their plan was to only drive once or twice a week whether for sightseeing or to take care of personal needs. That plan is no different from the typical landowner of the future, as they will drive to the country and park the car. In turn they will go and enjoy their surroundings (like gardening, hiking, camping, fishing etc). People will continue to flock to the rural lifestyle no matter what the price of gas is – this is part of the “American Dream” for many. The USA Today reported recently that if a family made a long trip (around 6 hours) than the cost of gas was up only $30 compared to one year ago. In fact, in a second article by the USA Today the results of their poll said that 60% of retiring baby boomers plan to retire to a rural or small town. The rural lifestyle is still on the radar screen for many baby boomers and gas prices will not detour that dream!