Simple Arithmetic Helps Sell Outlying Homes

A recent report predicts 14% increase in auto sales in coming year, due in large part to improved consumer confidence and credit availability. BUT, gas prices still weigh heavily on everyone’s minds.  I predict improved showings and closings for downtown lofts and condos, and for older neighborhoods close to large employers, shopping and dining.

McMansions outside town, and farmettes, probably will continue to languish. That is, unless you can justify reduced prices in terms of fuel expenses.  In other words,

“This exburban (past the suburbs) home is $15,000 less than a somewhat comparable (but less desirable 😦 ) house in town. If your car gets just 15 miles to the gallon, and gas goes way up to $6 a gallon, then you can afford to commute for over 12 YEARS and STILL save money!”

Here’s the reasoning if you want to duplicate it with your own numbers:

Car gets 15 mpg, commute is 20 miles per day.  20 miles ÷ 15mpg = 1.33 gallons of gas per day to commute.

At $6 per gallon, the daily commute costs $7.98

The house outside town is $15,000 cheaper than the one close to town. Assuming purchase price has 80% financing at 4½ % interest over 30 years, the interest on the $12,000 financed will cost the buyer $9,888.81.

So, saving $15,000 on the purchase price REALLY saves the buyer $24,888.81.

Savings of $24,888.81 ÷ $7.98 daily commute costs = 3,118 days of commuting.

If someone works 50 weeks a year, they commute 250 days a year.

3,118 days of commuting ÷ 250 days per year = 12.47 years of commuting.

So, under these assumptions, getting a house $15,000 more cheaply than the one in town, and commuting 20 miles per day, makes great economic sense.