High Energy Costs Pose Another Negative Catalyst For Real Estate

There are plenty of good posts out there arguing for weakness in real estate. The listings we get every week tell the same story. At least in the Boston area we see numerous price reductions and most sales below offering prices.

Lately, however, a number of new listings and price reductions made us realize that at least in the North East we might see additional pressure to unload properties that are especially old and inefficient when it comes to energy use. We’ve seen some listings we might have jumped at two years ago but now won’t even look at them because they would cost a small fortune to heat and power.

For those around during the NYC real estate crunch in the late-80’s, it was the high monthly maintenance charges on some apartments that made them almost impossible to sell.

Energy prices are already high and if you believe forecasts from people like Goldman Sachs, they will go higher this winter (oil at $95 according to them).

Bulls might say that this would also increase demand for newer, more efficient properties which is a valid point. However the overall impact is likely to be driven more by the increase in supply and the greater incentive for sellers to reduce prices and unload these properties.

We don’t think anyone can really forecast the economy or the real estate market, but having lived through the NYC experience, we think time is on the side of the buyer these days and should remain the case for another year or so. Unless super-low interest rates reappear soon, the scenario should play out as many expect.