As far as the economy is concerned, which is more important? Energy or housing? According to the Bureau of Economic Analysis, expenditures on gasoline, fuel oil and other energy goods made up 2.7% of our $13.2 trillion GDP in the second quarter of this year. Residential investment amounted to 6%. Another 14.1% went to housing-related services. Therefore, even a moderate decrease in home prices would likely offset the benefits of lower energy prices.
Not many people are talking about this. Right now, they're simply celebrating the fact that gasoline prices have come down from their recent highs. When it comes to gasoline, consumers have very short memories. They remember well what they paid the last time they filled the tank. But they have trouble remembering how much they paid 100 tankfuls ago. If gasoline is cheaper today than it was a week ago, they feel good. They don't really care to remember that it's more expensive than it was just two or three years ago. Those days no longer seem relevant.
However, as an investor, I would focus more on housing right now. Although the official figures show that prices haven't yet fallen on a year-over-year basis, appreciation has slowed considerably. Coming reports will no doubt document falling prices. That is when we could see a significant hit to consumer spending.
I'll be discussing some of these topics on MSNBC on Sunday morning around 10:45 EST. Tune in if you can.
