Economic Commentary: Disasters and Home Prices

Is It Just Us?

Are we imagining the fact that there seems to be more natural disasters than ever? Blizzards, earthquakes, hurricanes and floods seem to dominate headlines. Certainly, these events have a major effect upon the economy. Case in point, even though the price of oil has dropped substantially from its recent peak, gas prices have not dropped as much because the recent floods in the nation’s midsection are threatening refineries. And the price of gas is very important to our economic well being. While certain stocks may benefit from $4.00 per gallon gas, the average consumer is hurt. When consumers are hurting this means they slow down their purchases of larger ticket items such as houses, cars, furniture and more. We are not even sure why the stock market keeps falling when oil prices recede and rallying when oil prices rally. We understand that a certain segment of the economy benefits from higher oil prices, and you can guess who. However, in the long run higher oil prices translate into slower economic growth.

An argument can be made that lower housing prices will hurt the economy today, but help the economy in the long run. How can that be? Well, let us present an excerpt from a Washington Post article summarized in the news section below: Young buyers “will be able to enter the housing market at bargain prices,” argues NAR economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says. What a great time to be young–when purchasing a home is the most affordable it has been in over forty years! These low prices will hurt homeowners who are under water today but will set the stage for a much more robust housing sector for the next generation. In some respects, higher oil prices can help the economy in the long run as well. Higher oil prices may force us to come up with alternative energy sources more quickly, paving the way for energy independence. So, while we must acknowledge the pain that higher oil prices and lower housing prices are causing our population today, we also would be remiss in not looking at what could be a brighter future. That being said, the floods will recede and thus the refineries will no longer be threatened. If supply and demand come back into balance, we could see some easing of gas prices if the speculators would just start purchasing real estate instead of oil futures! Of course, we don’t expect any economic advisors to be taking our advice–but we can always dream.

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