Are Falling Gas Prices Offsetting the Impact of Housing?

The latest Fed Beige Book, which gives assessments on current economic conditions from the Fed's 12 regional banks, reportedly finds that the impact of falling gas prices is offsetting the impact of the weak housing market. This one doesn't sound quite right.

The country buys approximately 130 billion gallons of gas annually. If we say that prices are down 80 cents a gallon from the spring peaks, this translates into savings of just over $100 billion annually. If 70 percent of this goes to consumers (a substantial portion of gasoline is used for commerical purposes), it means that lower gas prices will put another $70 billion a year in consumers pockets, compared to a situation in which gas had stayed at its peak prices.

By contrast, homeowners are pulling more than $700 billion in equaity out of their homes. While the full impact of lower home prices will only be felt through time, given the small amount of equity that many homeowners have, this figure can easily fall by two-thirds, which would swamp the impact of lower gas prices.

--Dean Baker

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