[steinravnik]

Wealth Evaporates as Gas Prices Clobber McMansions, SUV Makers

June 9 (Bloomberg) -- Sky-high gasoline prices aren't just raising the cost of Eugene Marino's 120-mile round-trip to his job in the Washington area. They're reducing his wealth, too.

House prices in his rural subdivision beyond the Blue Ridge Mountains in Charles Town, West Virginia, have plunged as commuting expenses have soared. A four-bedroom home down the street from his is listed for $239,000, after selling new for $360,000 five years ago.

Homeowners in the exurbs aren't the only ones whose assets have taken a hit because of the surge in energy costs. Companies such as General Motors Corp. and UAL Corp. are writing off billions of dollars in plants and equipment that are no longer viable in an age of dearer oil. The destruction of wealth and capital will weigh on U.S. growth for years to come.

``Our whole economy reflects the relative costs of energy: the cars we drive, the houses we occupy, the kinds of factories we have and the equipment in them,'' says Dana Johnson, chief economist at Comerica Bank in Dallas. ``I'm expecting relatively large changes in all of these things.''

The loss of wealth could be a double whammy for the U.S. economy. In the short run, it depresses demand as homeowners save more and spend less, and companies fire workers. Longer run, it curbs productivity growth, as firms shift their focus from increasing worker efficiency to reducing energy costs.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4kOXcpI3dQg

 

[Speedjerk]

Ah yes, more doom and gloom. Call me a tin foil hat man but you can thank the Illuminati for this. Do some research on the New World Order and things will start to make a little more sense.

 

[steinravnik]

Hmmm... I didn't realize mcmansions used gas....

 

[wescoent]

Hmmm... I didn't realize mcmansions used gas....

The issue is that these developments are so far away from job-centers, that as the price of gas goes up, the value of the houses goes down, since living closer to job centers would save you more money.

Example:

Bob's McMansion is 50 miles from his job, and Bill's McMansion is 10 miles from his job.

Annual Miles Driven

Bob = 50 miles x 2 times per day x 5 days per week x 52 weeks in a year = 26,000 miles per year

Bill = 10 miles x 2 times per day x 5 days per week x 52 weeks in a year = 5,200 miles per year

Annual Fuel Consumed

Bob = 26,000 / 20 mpg = 1,300 gallons

Bill = 5,200 / 20 mpg = 260 gallons

Annual Fuel Cost at 2.50 per gallon

Bob = 1,300 x 2.50 = 3,250 bucks

Bill = 260 x 2.50 = 650 bucks

Annual Fuel Cost at 4.00 per gallon

Bob = 1,300 x 4.00 = 5,200

Bill = 260 x 4.00 = 1,040

Now, let's multiply that by 20 years of home ownership, and calculate the difference in price-hike impacts between Long-Distance Bob and Short-Hop Bill:

Bob = 65,000 total cost at 2.50, and 104,000 total at 4.00... difference of $40,000

Bill = 13,000 total cost at 2.50, and 20,800 at 4.00... difference of 7,800.

Hence, houses further away from job centers are impacted more by higher fuel costs.

 

[Sinner]

Ah yes, more doom and gloom. Call me a tin foil hat man but you can thank the Illuminati for this. Do some research on the New World Order and things will start to make a little more sense.

I was thinking about that the other day. I wonder if the Chinese finance their cars or buy them cash? My guess is cash.

 

[steinravnik]

The issue is that these developments are so far away from job-centers, that as the price of gas goes up, the value of the houses goes down, since living closer to job centers would save you more money.

Example:

Bob's McMansion is 50 miles from his job, and Bill's McMansion is 10 miles from his job.

Annual Miles Driven

Bob = 50 miles x 2 times per day x 5 days per week x 52 weeks in a year = 26,000 miles per year

Bill = 10 miles x 2 times per day x 5 days per week x 52 weeks in a year = 5,200 miles per year

Annual Fuel Consumed

Bob = 26,000 / 20 mpg = 1,300 gallons

Bill = 5,200 / 20 mpg = 260 gallons

Annual Fuel Cost at 2.50 per gallon

Bob = 1,300 x 2.50 = 3,250 bucks

Bill = 260 x 2.50 = 650 bucks

Annual Fuel Cost at 4.00 per gallon

Bob = 1,300 x 4.00 = 5,200

Bill = 260 x 4.00 = 1,040

Now, let's multiply that by 20 years of home ownership, and calculate the difference in price-hike impacts between Long-Distance Bob and Short-Hop Bill:

Bob = 65,000 total cost at 2.50, and 104,000 total at 4.00... difference of $40,000

Bill = 13,000 total cost at 2.50, and 20,800 at 4.00... difference of 7,800.

Hence, houses further away from job centers are impacted more by higher fuel costs.

I know, I was just trying to be funny.

 

[TruckMan]

I don't blame this problem on gas prices, I blame it on irresponsible buyers. If you buy a brand new $360,000 house, and then already can't afford gas prices, you over spent your budget by about $260,000. Gas prices are just an easy excuse. Seems like it would be a lot easier to buy a more fuel efficient car than sell your house at a $120,000 loss.

 

[Ming]

I blame it on irresponsible buyers. If you buy a brand new $360,000 house, and then already can't afford gas prices, you over spent your budget by about $260,000. Gas prices are just an easy excuse. .

This also applies to people who are already in cheap housing - like the mobile home park not to far from where I live - who go out and somehow get credit to buy huge, shiny new trucks that were likely around half of the cost of their homes..! Priorities, I guess... (and easy credit)

 

[TruckMan]

This also applies to people who are already in cheap housing - like the mobile home park not to far from where I live - who go out and somehow get credit to buy huge, shiny new trucks that were likely around half of the cost of their homes..! Priorities, I guess... (and easy credit)

I totally agree. People that are scramblig to make quick drastic changes to their lifestyles (house, car, etc) because of gas prices are probably ones that over-purchased in those categories.

 

[wildgoosechase]

In the long run I can see a shift to shorter commutes and more fuel efficient cars. The problem is the short run. People are trapped in their SUV loans, while they may have been ahead when they bought them but as the value as plummeted many are suddenly upside down in their loans. Sure you could buy a third car but you won't be saving any money once you factor the payment and insurance. It's going to be ugly until the vehicle fleet can turn over.

 

[jwrebholz]

That majority of the country lives paycheck to paycheck. Most people right now are 2 missed checks away from losing everything they own. Nobody saves, nobody plans.

If more people lived within their means instead of putting everything on a damn credit card we wouldn't be HAVING an economic crisis right now.

 

[jkennedy293]

I totally agree. People that are scramblig to make quick drastic changes to their lifestyles (house, car, etc) because of gas prices are probably ones that over-purchased in those categories.

I think it's more than that. I believe the response to gas prices is an emotional one. People see that portion of their budget skyrocket, and they panic. It makes no logical or financial sense to replace a paid off Trailblazer with a financed smaller vehicle, but that's what people have been doing lately.

 

[ponchoman49]

The stupidity of Americans is really starting to catch up, especially for those that went out and bought 12 MPG monster SUV's to drive to work and the store, bought houses that were outside of there means, live paycheck to paycheck, have 5 maxed out credit cards etc. We are our own worst enemies. Meanwhile the Saudis and OPEC are sitting back and laughing at us and getting fat and rich in the bargain. The gluttony of the 60's nearly put this country at a standstill in 1973. Now the greed and fat of the 90's is catching up with us in this most dreary of decades in a big way. But the problem is we are much different now. Back then people downsides there vehicles and cut back in a major way. Today it's business as usual with more people than ever clogging up the highways paying for all there purchase mistakes forclosing on there homes and racking up those credit cards to max.

 

[jkennedy293]

That majority of the country lives paycheck to paycheck. Most people right now are 2 missed checks away from losing everything they own. Nobody saves, nobody plans.

If more people lived within their means instead of putting everything on a damn credit card we wouldn't be HAVING an economic crisis right now.

How do see these people from so high up in your ivory tower?

 

[jwrebholz]

I never claimed to be perfect, I just don't waste all my money on stupid crap I can't pay for. I used to. I was an idiot. I made my mistakes and paid for them dearly. I learned. I don't do that anymore.

 

[paul38469]

This also applies to people who are already in cheap housing - like the mobile home park not to far from where I live - who go out and somehow get credit to buy huge, shiny new trucks that were likely around half of the cost of their homes..! Priorities, I guess... (and easy credit)

It also means that by next year when I move to the city, the overinflated housing prices could be even worse as people flee the suburbs to elimiate their commute.

 

[TruckMan]

It also means that by next year when I move to the city, the overinflated housing prices could be even worse as people flee the suburbs to elimiate their commute.

And then oil prices will drop in a few years and that bubble will burst. And the cycle repeats.

 

[[email protected]]

yes---bad money management, splurging, and bad economy ---hopefully i have prepared well enough to come out of this very comfortably----nice cheap big house, nice small car (uero focus st/ volt-if done right ...no excuses) SAVE YOUR PENNIES FOR RAINY DAYS!!!!!! buy usa ----if they survive

 

[big swede]

Hmmm... I didn't realize mcmansions used gas....

Maybe not gasoline but they use plenty of energy, all of which is getting more and more expensive.

 

[eaton53]

It makes no logical or financial sense to replace a paid off Trailblazer with a financed smaller vehicle, but that's what people have been doing lately.

Yep, makes no sense. What makes sense is buying that guy's Trailblazer...