Fritz Pfister

Good news this week as oil recorded the biggest weekly drop on record. After setting a record a week ago Friday over $145 a barrel the price finished yesterday at $128.88 a barrel. One week does not make a trend, however we’ll take it!

Why is the price of oil important to the housing market? Consumer spending is one major impact. As Americans have had to adjust their budgets for the high price of gas, and food, they have less to spend on other consumer goods and services. This negatively impacts the disposable income, and therefore the purchasing power of home buyers.

Another major role the price of oil plays in the housing market is the price of building materials. Speaking with a builder yesterday he said the cost of materials have risen between 25% and 30% from a year ago. Hence the higher price for a new home.

The price of oil also impacts the cost of development. The material costs for infrastructure such as sewer pipes, and asphalt go up. The fuel to power the heavy equipment to install the infrastructure goes up. Hence the price of a building lot goes up.

A developer told me that the price of land combined with the cost of improvements now exceeds what the retail price was for a lot last year.

When considering the higher costs for development, and building, combined with a decrease in demand, it is no surprise new home sales are down.

The Capital Area Association of Realtors member brokers reporting confirms fewer new homes are selling. Sales within the association do not include custom homes, or spec homes sold directly by builders, however represent the vast majority of new home sales.

Year to date in 2008 new home sales are down by 20.9% following a 13% decline in 2007. When interest rates fell to their lows near the end of 2002, at a time when building and lot costs were more affordable, the number of new home sales increased annually until a 2.6% decline in 2006.

The high for new home sales in the association was 339 in 2005, falling to 287 in 2007. This year is on pace for 230 new home sales, a 32% decline from the high in 2005.

The silver lining in the cloud is that the higher cost for new construction has supported the price of existing homes. At least until now.

The median sale price year to date is up by only 1%, a noticeable change from the 5.5% increase during the first quarter. Comparing the first 18 days of July to last year, the median price is down $5000 or by 4.6%. A fair comparison because through the first 18 days of July 2008, 191 home sales have closed compared to 189 last year.

It appears as if the slowing trend in home sales will continue. Home listings sold pending stand at 405 today while last year on this date there were 488, a 17% decline.

So the news is good that oil prices fell last week, and here’s to hoping that is a trend that continues. The value of every one’s home is at stake. The price of oil is the key component on the direction of our economy, including housing.

Some folks have speculated that President Bush’s calling for drilling offshore, and in Alaska combined with falling demand as folks adjust their consumption habits, have caused speculators to become nervous driving down the price this past week.

The price of oil is determined primarily by supply and demand. It is sheer economic foolishness not to increase the supply when you are able to do so. Oil industry analysts and experts say off shore drilling could bring oil to the market within two to three years, while ANWR within 5 years.

So what is happening? Congressional leadership says we can’t drill our way out of this problem, oil makes us sick, there wouldn’t be any oil delivered for 10 years, and would only save a couple cents per gallon. All partisan talking points, regurgitated by the main stream media, which have been debunked by industry experts.

These partisan talking points will do nothing to help your family to have more affordable gas, and food. The value of your most valuable asset, your home is going to diminish before your very eyes if these politicians don’t place you and the economy above their environmentalist contributors. To date they have proposed no viable solutions or action plans that will help bring down the price of oil.

Will the real leaders in our country please step forward.

Make it a great week from Fritz and Kristie Pfister and The Pfister Success Team at RE/MAX Professionals, Springfield. Call 652-7653 for the markets most effective real estate services.