How Higher Oil Prices could Effect Real Estate

With oil prices heading past $3.00 a gallon could such high prices create a fundamental change in where we live and do business.  I believe that a major shift could in fact occur in favor of cities and against the suburbs. This could create major pricing increases in terms of residential and commercial markets making urban markets much more attractive for long term investment while suburban markets most less desirable.

Cities that have a strong central downtown financial district with good mass transit could see the biggest boom. San Francisco for instance has seen their residential market gain over 25% in the last year. Its commercial market is almost as strong. Seattle another city with a strong downtown has seen increases in the high teens in both its residential and commercial sectors.   Cities such as Philadelphia that has experienced a fairly dramatic exodus out of its city over the last ten years has seen for the first time an increase in its population as well as over a 20% gain in its residential property values this year.

Most reasonably priced suburbs are being built further and further away from major downtown cities. These large track home developments are occurring in most cases without a similar expansion of existing freeways or mass transportation alternatives. This will create more congestive freeways along with a much higher price to get to and from their work because of gas increases. The less expensive home may become far less attractive if gas costs create too small of a difference to make it worthwhile to commute long distances every day.

Commercial properties in large urban markets should also fair much better than its suburban property counterparts. Suburban properties rely in almost all cases on the automobile to get workers to and from its locations. Even the lunch hour drive to a favorite restaurant instead of eating at the same local building deli may have to stop to save money on gas.

With a tank of gas heading to $50.00 this shift could come sooner than later all of which could cause major inflation pressure on homes, offices, employment costs cities while the suburbs could see a serious downturn in both values and services.