http://finance.yahoo.com/news/Consumers-feel-the-pinch-of-apf-3014714615.html?x=0&sec=topStories&pos=5&asset=&ccode=
Although not directly related to foreclosures I will attempt to bridge the two. This article talks about the effects of rising food and gas prices throughout the United States. While the rise in these prices has not spread to other items the consumer is definitely seeing the effects. When essentials like food and gas increase in price the cost of living obviously increases.
As a result of said increases do you think we will see an increase in foreclosures, as consumers will now be more strapped for cash? In my opinion the resulting changes are too minute to have any dramatic effects.
Thoughts?
Gas and food are both inelastic goods (gas is at least for now). I think right now is too early to tell if an increase in the prices of these goods will increase foreclosures. As time goes by, I'd expect for producers to hand more of the price increases down to consumers, and then we may see increased levels of renting or foreclosure.
ReplyDeleteGas prices are soooo outrageous!It's promising that many analysts think that prices will go down and/or stabilize come summer, but I agree that it still is too early to tell if this will impact foreclosures.
ReplyDeleteI can't imagine this pushing the foreclosure rate to much higher than what it already is. That said, I think the possibility of inflation will definitely slow the recovery of the housing market. As food and gas prices rise (and other consumer goods follow), Americans will buckle down and act more cautiously. This means that the large amount of houses already on the market will most likely remain empty for a longer period of time than previously expected.
ReplyDeleteAdditionally, while food and oil prices are currently rising, they are unlikely to continue to do so at their current rate. Both food and oil markets are known for being extremely volatile and are not good indicators of core inflation (which is still well below Fed targets). As such, I imagine the rise will not continue. If it does and core inflation targets begin to rise as well we may have some cause for concern, but for now we do not.
ReplyDeleteI agree with Martin. With money spread so thin over all and not just a few of our basic needs, recovery is sure to slow.
ReplyDeleteAlso I think that being environmentally conscious and taking advantage of alternatives to buying gas, etc are starting to have an impact and that these trends will change peoples' current habits before it impacts further the foreclosure crisis.
Ever noticed how war or conflict in the Middle East constitutes a rise in oil prices? Americans will continue to buy gas at the normal rate until they can absolutely no longer afford it.
ReplyDeleteFor a short period of time consumers will restrict themselves to buying only the “necessities”, yet once they become accustomed to the prices they will go back to old habits. This will affect all industries including the housing.
When I say necessities I am talking about basic necessities like food and healthcare. However necessities in today’s terms include the latest technology, fashion, etc.
This ties into the phenomenon of "drive 'til you qualify" that waas one of the factors behind the original foreclosure crisis.
ReplyDeleteThis article is worth at least a quick scan, as it covers the concept well. The graphs in particular are informative:
http://streetsblog.net/2010/03/25/most-important-analysis-of-land-use-youll-see-all-year/
The point is, the housing boom resulted in a huge increase in the housing supply without a significant change in land use policy/existing land use. This was linked to a general increase in lot and house sizes and increasing desire for cul-de-sac based subdivisions (as opposed to traditional neighborhood forms).
Naturally, the farther out you went, the cheaper the houses. But your transportation costs also increased, and many people aren't very good at considering that impact on their budget. So when their mortgage payments exploded, that was in addition to general inelastic costs they had also increased. Furthermore, more vehicle miles means that any % increase in fuel costs results in a larger $ increase in transport cost, again amplifying the pressure on mortgage payments.
So will the current fuel price increase re-spark a foreclosure boom? Probably not. But fuel politics and pricing were definitely a (secondary) factor in the original problem.