March 21, 2011

Higher oil and food prices hurt housing market

Existing home sales for February, which tumbled 9.6 percent, show that prices of every day items can have an impact on consumer's larger purchasing decisions, says Anthony Sanders, scholar at the Mercatus Center and real estate finance professor at George Mason University.

“Drastic increases in oil prices can slow the housing market because many consumers are forced to make spending trade-offs,” Sanders said. “If a potential homeowner is having to spend more money on transportation and food, he or she may wait a little bit longer to enter into the housing market.”

“Fear is bad for the housing market. Potential homeowners need to feel confident in where the market is going.  The housing market is already uncertain, and a massive increase in oil prices will add more fear and hesitation.”

“As more homes are constrained by increases in food, transportation and other costs, we may see another wave of foreclosures. This will put banks in an even more strained situation and will have a big ripple effect throughout the economy,” Sanders said.