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How Hurricanes Change Home Affordability

2008
07.23

After falling 7 cents per gallon over the last 7 days, gas prices are being pressured higher today as Hurricane Dolly barrels through the Gulf of Mexico.

The first landfall hurricane of the season is expected to flood the southern Texas coast and cause minor disruptions to the nation’s oil supplies.

Versus Hurricane Katrina in 2005, Dolly’s impact on oil supplies is expected to be small but that doesn’t stop traders from bidding up oil prices “just in case” their expectations are wrong.

For instance, oil prices rose almost 2 percent Monday as Dolly drifted into the Gulf. Oil prices then receded as the storm’s path was better defined.

Regardless, when hurricanes form in the Gulf of Mexico, it’s going to be bad news for home buyers.

Because the Gulf of Mexico is stocked with oil refineries and shipping ports, when specific areas are hit by heavy rains and power outages, supply and demand takes over, pushing oil prices higher. This causes gasoline prices to rise and that is considered an inflationary pressure on the economy.

Inflation, of course, causes mortgage rates to rise so when hurricanes are brewing, it generally means that housing is about to get less affordable for Americans.

This week, mortgage rates are up by about 0.125 percent overall so far — roughly $8 monthly per $100,000 borrowed.

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