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Originally published July 7, 2008 at 12:00 AM | Page modified July 7, 2008 at 8:28 AM

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Will gas prices drive homebuyers away from suburbs?

As gas prices climb, homebuyers increasingly will choose to live closer to work, and that eventually will depress suburban home prices while strengthening in-city values, a Portland economist predicts.

Seattle Times business reporter

As he gassed up his 2002 Honda Civic recently, David Underwood found himself at the intersection of two priorities: transportation costs and housing.

Paying $53 for a tank of gas to commute from his Kirkland rental condo to his Seattle job, Underwood realized that price set a "personal best" he'd rather not repeat.

That's why after much discussion, he and his partner, Kali Kuwada, decided to buy their first home in Seattle, as close to their jobs as possible.

"We found ourselves talking more and more often about house prices going down and gas going up and how that intersected with our priorities: getting home fast and not having to spend a lot on gas," says Underwood, a student and Seattle Central Community College employee who's buying a Seattle town house near three bus lines.

"Ideally I'd like to live outside the city so we could get more for our money," says Kuwada, a student whose 1996 Camry drinks three $70 fill-ups a month. "But gas and money and time are such huge factors. We sit in traffic forever and spend all that money sitting there. It's insane."

A Portland economist predicts that buyers soon will choose where to live based on what they would spend for gasoline.

That, eventually, will devalue suburban housing while strengthening in-city home prices, says Joe Cortright, whose Portland consulting firm, Impresa, recently released a report saying as much to U.S. mayors.

"The new calculus of higher gas prices may have permanently reshaped urban housing markets," said Cortright, a senior fellow at the Brookings Institution, a nonprofit Washington, D.C., think tank. "What this really means is that as people move, they're going to look for places that enable them to drive shorter distances and avoid places where they have to drive a lot.

"I expect this to be a subtle process. I don't expect everyone to put their suburban houses on the market all at the same time."

But the thinking has started, according to a national Coldwell Banker survey of almost 1,000 real-estate brokers. Last month, 93 percent said rising gas and oil prices were "a concern to their clients," and 78 percent said higher fuel costs are increasing their clients' interest in urban living.

Here, the topic is "kind of under the surface," says real-estate broker Rich Bianchi, with Keller Williams Realty in West Seattle. "People are concerned. If gas continues to stay at this level, then they'll have to start making some changes."

Cortright says he's starting to see proof of change in cities nationwide — from Los Angeles to Pittsburgh, from Tampa to Seattle.

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"Statistically, home prices are down more in the most distant suburbs and still relatively strong in the closer-in neighborhoods," he says. "The closer you are to downtown Seattle, the stronger the single-family residential market is."

Cities that offer attractive close-in housing will be more economically successful than those that continue to "follow sprawling development patterns," Cortright says.

This is a turnaround from the later decades of the 20th century, when low and stable gas prices helped the suburbs grow by making commuting economically painless.

"The thing we heard was, 'Drive until you qualify' [for a mortgage] because real estate is less expensive the further out you go," Cortright says. "So if people would put up with a longer commute, they'd have the opportunity to be able to afford a place."

But even much cheaper homes in the suburbs might not convince people to buy there if fuel prices stay high.

As gas costs increased after 2002, they still didn't have a big effect on consumer behavior because they fluctuated.

"If you think it's temporary, maybe you don't have to change your behavior," Cortright says. "What's changed in the last five or six months is that people believe gas is going to be at least $3 or $4, and they're recalibrating their thinking of how to deal with that."

The proof, he says, can be seen in higher transit ridership and lower SUV sales.

And $4 a gallon may not last long. According to the latest Consumer Price Index, energy costs are up 17.4 percent for the year ending in May — far outpacing any other personal-expenditure category. And the worst could be yet to come.

Jeff Rubin, an analyst at CIBC World Markets, recently predicted in The New York Times that oil prices might exceed $200 a barrel within four years. That would translate to $7 for a gallon of gas — a bargain by European standards, but a major shock for U.S. drivers who saw inflation-adjusted gas prices actually decline between 1980 and 2000.

Still, not everyone buys Cortright's thesis, a fact driven home by comments his report has prompted.

"I used to live in the center city, but after numerous home break-ins, car break-ins, and the general noise and filth, I moved out to one of the most distant suburbs and now commute in about 27 miles each way," one Seattle-area resident said in an online posting. "I would not move back to the city until gas goes to $10 a gallon."

Others said they'd buy more fuel-efficient cars or switch to mass transit before they'd abandon the suburbs. They also point out that people can work and shop from home.

In choosing where to live, "lifestyle trumps everything," says Ron Sparks, a Coldwell Banker Bain vice president.

That's what Underwood and Kuwada decided.

Rather than pay the high cost of gas or spend three hours a day busing between their Kirkland home and Seattle jobs, the couple chose to spend less money and time on the road.

Living in Seattle's Roosevelt neighborhood will allow them to get home cheaper and quicker to spend more time with their dog, a Japanese shiba inu named Mr. Miyagi.

Elizabeth Rhodes: erhodes@seattletimes.com

Copyright © 2008 The Seattle Times Company

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