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Exurbs Take it on the Chin

Written By Brian Hicks

Posted June 9, 2008





Here’s another story on inflation and the chain of events that high gas prices can set into motion. It looks like the Exurbs are about to get it on the chin.

From Bloomberg by Rich Miller and Matthew Benjamin entitled: Wealth Evaporates as Gas Prices Clobber McMansions

“Sky-high gasoline prices aren’t just raising the cost of Eugene Marino’s 120-mile (193-kilometer) 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. 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.

At $4 per gallon gas, $125 per barrel oil and $10 per million Btu natural gas, a lot of activity becomes uneconomical,” says Mark Zandi, chief economist at Moody’s in West Chester, Pennsylvania.

The lifestyle of the exurban commuter may be one casualty.

Emerging suburbs and exurbs — commuter towns that lie beyond cities and their traditional suburbs — grew about 15 percent from 2000 to 2006, nearly three times as fast as the U.S. population, as Americans moved further out in search of more affordable houses or the bigger ones that are sometimes derided as McMansions.

“It was drive until you qualify” for a mortgage, says Robert Lang, director of the Metropolitan Institute at Virginia Tech in Alexandria, Virginia. “You can’t do that anymore. Your cost of transportation will spike too much.”


First it was the end of Hummer and now it’s the demise of the McMansion.

How will we ever begin to cope?