Good to the last drop

Good to the last drop

I admit that I am no stock market expert.  So, I am puzzled when I hear that falling oil prices can have a negative effect on the economy.  I understand that a lower cost of oil detracts from fossil fuel exploration, that it negatively impacts the value of big energy conglomerates and that there is economic fallout to energy dependent countries like Russia and Venezuela, as well as energy based cities like Houston.  However, last time I checked, the remainder of the world uses oil.  Falling oil prices can only help the rest of us.

From a home building construction perspective, this benefit helps in two ways.  First, it reduces the cost to manufacture building materials.  A large number of construction materials are oil based products.  Second, there are large fuel savings for transportation of both labor and material deliveries.  While I do not see these savings necessarily being fully passed along to the actual home builders in an improving housing market, I do see these savings increasing the bottom lines of the construction trades.

Lower oil prices should, though, benefit home builders from a consumer purchasing perspective.  First, lower oil prices means lower gas prices which increases disposable income, allowing for a more expensive home purchase decision.  Additionally, lower gas prices increases the universe of community options for buyers, as distance becomes less of an issue with reduced travel expenses.  Both of these circumstances will lead to increased demand, resulting in higher home prices. 

Finally, we all know the trickle-down effect to the economy of home building.  As it touches so many industries, what is good for home building is good for the overall economy.

Now, I understand the concept that what is good for oil users is bad for oil producers, and that reduced oil pricing is bad for those economies dependent on fossil fuel energy production.  However, most people and industries are energy users, not energy generators.  I have to believe that both the short and long term benefit of reduced energy costs can only be good for the continued growth of both the housing industry as well as the overall economy. 

Remember, as housing goes, so goes the economy.  If we need less expensive oil to grease those wheels, how can that ever be a bad thing?

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328