Add this reason to the list of causes for the housing downturn: rising gas prices.
In a new study released by CEO for Cities, gas price increases in the last five years are cited as a factor in declining home values and loan defaults in distant suburbs and metropolitan areas with weak central cities.
The study, called “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” measured the change in housing prices between the fourth quarter of 2006 and the fourth quarter of 2007, as well as foreclosures and delinquencies, in 20 major markets.
Five markets -- Los Angeles, Chicago, Tampa, Pittsburgh, and Portland, Ore. – were examined in detail. In all five markets, neighborhoods within three miles of the central business district held their home values better than neighborhoods that were 10 miles further out.
CEOs for Cities is a Chicago-based network of corporate, academic, civic, and philanthropic leaders focused on urban strategies for addressing societal issues.
The study reinforces the “drive ‘til you qualify approach to home buying,” says its author, Portland, Ore.-based economist Joe Cortright.
“We knew a lot of households were using their cars to be able to afford housing, and we knew those households were spending a bigger part of their budget on car payments and gasoline. Our view is that we have to bundle transportation into the affordability equation.”
The study also found a “very strong correlation between how strong central cities are and overall economic success,” Cortright says. Core vitality ratings use an index of the concentration of education levels of residents of close-in neighborhoods; a rating of 100 percent on the core vitality index means that the educational level of adults living in neighborhoods within five miles of the center of the central business distract was the same as the education level of the entire metropolitan area, according to the study. New York, Chicago, Seattle, and Portland, markets with strong central cities, were least affected by the housing downturn, with the lowest rate of price decline and delinquency, he says.
From a development perspective, Cortright says the study suggests that it will be much harder to turn a profit on projects in the distant suburbs, and conversely, there will be “much more consumer interest in those closer-in projects.”
One caveat about the study is that the housing prices were based on data from the real estate valuation Web site Zillow.com. The site draws on public records, the reliability of which can differ significantly from market to market. In Atlanta, for instance, the site reports that its “Zestimate,” which is Zillow.com’s estimated market value, has a median error of 11.2 percent. In Pittsburgh, the median error was 15.7 percent.
Learn more about markets featured in this article: Atlanta, GA.