Throw Another Log on the Fire

posted on June 6th, 2008 filed under: Real Estate News

Oil is about $135 now.  Heating oil is about $4 per gallon.  Any notherners brave enough to be house-hunting should remeber to factor in a few thousand dollars a year in additional, non-deductible energy expenses.  If buyers care about their own financial well-being, the spike in oil will drive down home prices.

The yearly energy tab for a medium-size, 4-bedroom house might have been $5,000 earlier this decade.  Now it’s pushing $10,000.  What does that extra $5,000 of non-deductible heating costs do to housing affordability?  For a typical buyer, it’s the rough equivalent of $6,000 to $7,000 in deductible mortgage payments, which translates into about $90,000 of borrowing power.  (At 6% on a 30-year fixed, the monthly payment on $90,000 is about $540 per month, or $6480 per year.)

That’s a lot of bread, man.  Heck, it’s almost 15% of the $635,000 median price of a home in Westchester County, NY, and 45% of the $199,000 median price in Albany County, NY.  Maybe the median house is smaller than the 4-bedroom example above, so the implied price drop could be smaller.  But there’s clearly another reason here for buyers to beware.

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posted by // This entry was posted on Friday, June 6th, 2008 at 2:39 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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