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Broadway
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Should High Gas Costs Drive Buyer Behavior? |
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 This was an interesting question posed by a friend a few weeks ago, and we took some time to do some rough analysis, which seemed to indicate NO. Here's the logic:Historically, some people who work in Harrisonburg have chosen to live outside of Harrisonburg where housing is somewhat more affordable. Two classic examples of this are Weyers Cave (14.4 miles away) and Broadway (12.9 miles away). Both Weyers Cave and Broadway have offered home buyers housing at somewhat lower prices, within a reasonable commute to Harrisonburg. But with gas costs going higher and higher, could (or should) this buyer behavior change? The distances above (14.4m, 12.9m) were city-center to town-center. We'll round up, and say the one-way commute for a fictitious commuter is 15 miles. We'll assume a somewhat gas-hungry vehicle that will drive 20 miles per gallon of gas. With current (4/29/2008) gas costs around $3.60, the one-way commute has a gas cost of $2.70. Driving both ways to and from work, 5 days a week, 50 weeks a year, equates to an annual cost of $1,350. If someone lived in Harrisonburg instead (and still worked in Harrisonburg), their commute might be 3 miles, which would equate to an annual cost of $270. Thus, the cost savings in gas consumption (relative to the work commute) of living in Harrisonburg instead of Broadway or Weyers Cave is approximately $1,080 per year. That $1,080 per year, or $90 per month, if used to allow the home owner to afford a larger mortgage payment, would allow for a home purchase of $13,500 greater. That is to say that a $200,000 home ($40k down, 6% rate) would have an $1,100 monthly payment, and a $213,500 home ($40k down, 6% rate) would have an $1,190 monthly payment. So, the question then becomes, does a $200,000 home in Broadway or Weyers Cave cost $213,500 in Harrisonburg, or more, or less? Broadway: 4 bedrooms, 2.5 bathrooms, 1517 SF, circa 2007, garage, $199,900 http://60755.scottprogers.com Weyers Cave: 4 bedrooms, 2 bathrooms, 1584 SF, circa 2003, $199,000 http://64154.scottprogers.com Harrisonburg: 3 bedrooms, 2.5 bathrooms, 1360 SF, circa 2002, garage, $214,900 http://62949.scottprogers.com Though the data in my example is limited, it seems that even accounting for the commuting cost of living in Broadway or Weyers Cave, you can still buy a (somewhat) larger, (somewhat) newer house in those communities as opposed to Harrisonburg. | |
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Scott Rogers
Coldwell Banker
Funkhouser Realtors
540-578-0102
scott@cbfunkhouser.com
Licensed in the
Commonwealth of Virginia
I see people making this erroneous calculation all the time. The cost of a commute is a lot more than the cost of fuel. I won't even go into the quality of life issues of that extra work-day equivalent spent each week careening about in a steel box (6 hours by your calc), or having to drive miles to find groceries, long bus rides for the kids, mom's taxi service etc.
The gold standard for auto ownership is the General Service Administration (GSA) POV allowance. The Privately Owned Vehicle reimbursement allowance incorporates all of the costs of operating a vehicle and it is currently at $0.505/mile. I have found this to be a very accurate estimate. Using your assumptions that daily commute from Weyers Cave would cost the commuter $3,785/year while the 'Burger would spend $757/year for a savings of $3030/year. That means that someone buying a house in Harrisonburg would have at least $250/month of extra money to spend on that mortgage! By the time the average person is done ferrying kids to schools, doctors visits, playtime, activities and making the obligatory hardware store visits the cost is way higher.
If I were going to guess the trend, I would say this cost disadvantage will only increase in the future.
You do a great job with technology - raising the bar for the RE sector!
April 29, 2008 9:20 am
Bubby -- thanks for your comments. I was indeed only looking at the surface level cost of fuel. The other costs of operating a vehicle, plus the additional non-work-related trips, plus the loss of time, plus the quality of life issue definitely change the scenario a bit! Thanks especially for pulling out those numbers from the GSA to put some hard numbers to the comparison.
I'd be interested to know whether many people in this area have made a decision about where to live based on fuel, commuting time, quality of life, etc. Over the past few years, I have seen many buyers who were looking for an modestly sized single family home turn to Broadway or Weyers Cave because the houses were more affordable, or because that is where such single family homes were actually being built. But, as you have pointed out, there are definitely some trade offs for doing so.
Again --- thanks for the added perspective!!
April 29, 2008 3:19 pm
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