H + T

Many years ago, prior to the great recession, I recall reading an article in a planning magazine that seemed to portend the coming great recession.  It talked about a number of persons who lived in Nevada, near Las Vegas, and would drive 3 hours one way to get to work near Los Angeles.  That is six hours on the road a day. Needless to say, they missed a bunch of their kids events, which made life in the way out suburbs more a drag than not. Some would leave early and catch a nap on the way to work and start the journey again.  And that is why H + T (Housing plus Transportation) is important. I don't think the article used the H+T acronym, so it probably came to the planning lingo after that article. H+T is a planning concept to consider commuting costs to work, as well as where one lives. When buying a home do not just consider the price of the dwelling, but also the cost for you to get to work and back.  Since most Americans drive their own car to commute, that means gas prices are important.

The people moved to Nevada because housing was much cheaper than it was in and near Los Angeles.  The problem is that when oil demand increased worldwide, and the economy improved, gas prices started to skyrocket. That means you spend more money on gas for the same distance traveled.  Just prior to and for the first several months of the recession gas prices peaked at $4.10 per gallon in July 2008. That seems like a good deal of money to the Millennial drivers of today who have become acclimated to gas prices in the two to three dollar range.  And even worse when you consider how low gas prices have become during Covid, being under $2.00 per gallon for many weeks in the past eight to nine months.

This graph shows US Crude Oil Production
from 1920 to 2017. Production significantly
increased  just after 2011, mainly due to fracking

Let me take an example for those long Nevada to California commuters.  If one commuted 150 miles to work one way, that is 300 miles a day. If you had a car that got 28 mpg for your commute that would work out to 10.8 gallons of fuel used per day, or 54 gallons per week.  If gas was $2.49/gal when you bought your home near Sin City, but then fuel prices increased to $3.89 there would be an increase of over $75 per week in fuel costs for the weekly commute.  If your commute was much less, say about 25 miles that increase could be more easily absorbed, but an extra $75/week starts to become substantial.  Showing how difficult this may make economic decisions, the drivers may have had to actually cut back on their latte or cappuccino purchases. Talk about sacrifice.

At that time, fracking, and shale were not as integral to keeping gas prices low.  Fracking and shale oil would arise in the 2010's to today.  Technology has allowed gas prices to moderate as production in the United States has increased.  Interestingly, low gas prices help drive economic growth.  US crude oil output increased at the same time of interest in green technology started to ramp up due to high energy costs of the prior decade. 

While showing the gap between new homes and resale prices
for the Las Vegas area, it also shows how home prices increased after 
2003 and then the drop with the recession from late 2007-2012

Housing is related to demographics.  The housing market was strong in the mid 1980's to early 1990's due to Baby Boomer purchases of houses.  My first interest rate when we bought was over 10%, an absurdly high number today.  Over the years, we refinanced down to just under 7%.  Generation X, those buyers of the homes in the Las Vegas area, were buying homes about 20 years ago, and hence there was demand and they bought far outside the area to increase their purchasing power for a larger home, or any home, at the expense of commuting. Today, housing costs are again high as the Millennial generation are now moving from their apartments to houses.  This of course, varies by market.  One can probably buy a lot or old house in Detroit for pennies of what it would be in a strong market area, like Madison, WI.  Of course, Madison's market is much more affordable for housing than that on the coasts.

Fitchburg has a good number of high end subdivisions, and in the 1990's to 2000's those were filled in part by professionals moving to Madison from the east or west coast, and here they could buy a much nicer house for $400,000 (back then of course) than they would ever be able to afford on the coasts.

Income generally rises as you age, but with a thirty year mortgage your housing costs remain stable.  This stability gives more certainty and the added benefit of more disposable income.  However, to make the initial cost house cost more affordable balloon mortgages were introduced.  Instead of a stable rate for thirty years the rate would increase at certain increments.  With a balloon you may not even have had an initial payment.  You simply push the cost down to a later point in time.  For short term thinkers, those raised on the sound-byte era, housing costs were, at least initially, reduced by the balloon mortgages which became common in the 1990's. Deal with the problem later.  With a balloon payment you lack certainty and that can eat into what you thought was disposable income.

Well, as the economy improved, the balloon payments were now taking effect, about the same time as fuel prices increased--in a few years leading to the great recession which started in the fall of 2007.  A perfect storm for some housing markets, and this would lead to a deep recession.  The housing crisis was precipitated in large part by the increase in mortgage costs as the rates started to increase, or balloon.  Add on top of your increased house payment, the cost for utilities and gas for your long commute, and you can see why a person should consider more than just housing costs when purchasing a house. These were the points of the article I read so many years ago.