Nationwide average gasoline prices in the US touched a record high of $5 per gallon on Saturday, June 11, 2022. This anticipated yet unwelcome hike in gas prices has been a significant contributor to the highest inflation rate the country has seen in 40 years. Unfortunately, there seem to be no indications of gas prices coming down anytime soon.
Out of the 50 states in the US, California has the highest average gas price, which values it at $6.43 per gallon, while Mississippi enjoys the lowest average price of $4.52 per gallon. Naturally, this surge in gas price has affected a wide range of industries in the US, with the home improvement industry taking one of the biggest hits. Such uncertainty in the gas prices and economy has led people to question why gas price rises and how it affects their home improvement projects.
Some financial experts suggest that investing in a new home with the help of reputable real estate agents in Alexandria, VA, would be a better investment than home remodeling. This article will explain why gas price rises and how it correlates to the home improvement industry.
Why Gas Price Rise
Multiple factors have contributed to driving up the gas price in the US to an all-time high. To gain a better understanding of the situation, let’s go over each of these factors briefly:
The US Is a Major Importer of Crude Oil
While the US is the largest oil producer in the world, it is also one of the biggest importers of oil. In fact, the country ranks as the second-largest importer of crude oil after China. The reason behind this is that the refineries in the US were set up to process types of crude oil that aren’t found in the US.
Reconfiguring the refineries to facilitate the processing of American-produced oil would be expensive and, therefore, financially unfeasible. Additionally, oil consumption in the US is much higher than its production capacity. As a result, the US has no choice but to import oil from other countries, and so when the global cost of oil goes up, the cost of gasoline in the US does too.
Russia’s Invasion of Ukraine
Russia is the world’s second-largest producer of crude oil, and in 2021, approximately 8% of crude oil imports of the US were accommodated by Russia. Furthermore, it is estimated that one in ten barrels of crude oil in the global market comes from Russia. As such, it can be safely concluded that Russia is a crucial supplier of crude oil globally.
However, with Russia’s invasion of Ukraine, the US and many other European countries have imposed sanctions on Russia and have stopped buying oil from them. This has resulted in a significant reduction in the global oil supply leading to a surge in oil prices. The higher the global oil prices, the more expensive gas becomes in the US.
Increased Energy Consumption
With the COVID-19 pandemic finally coming to an end, the world has moved into a state of economic recovery. Industries and offices have started to reopen, and the world is gradually recovering from the damages inflicted by the virus.
However, all this is accompanied by a surge in global energy consumption, which has led to an increase in the demand for oil. Because of this, the global oil prices and the cost of gas in the US have steadily been rising since April 2020.
How Rising Gas Prices Have Impacted the Home Improvement Industry
The surge in US gas prices has impacted the home improvement industry in the country in more than just one way. The spike in gas prices has, directly and indirectly, increased the expenses and time involved in completing home improvement projects.
This means that if you’re considering getting your home remodeled or having repairs made to your home, you should prepare for delays in the project and for a higher overall project cost than what you may have estimated. In more detail, let’s look at how gas prices impact the home improvement industry.
Effect of Gas Prices on Cost of Home Improvement Projects
There are various expenses involved in a home improvement project, most of which depend on gasoline prices. For instance, the cost of fuel the contractor consumes in visiting your home will now be much higher than what it would have been a few years back.
While you may waive off this expense as insignificant, it is worth noting that contractors usually take on multiple projects at a time and, therefore, will be commuting to various locations throughout their day. In addition, the contractor will be visiting your home regularly throughout the term of your project. This compounds the contractor’s expenditure on fuel which will most definitely lead to an increment in the net cost of your project.
Moreover, the hike in gas prices will lead to a substantial increase in the material costs involved in the project. Manufacturing industries such as cement, steel, concrete, and bricks are generally very energy-intensive facilities and consume an enormous amount of gas and electricity to power their day-to-day operations.
With increased gas prices raising the operational costs of these industries, construction materials are bound to go up in cost. Adding to the expenses is the increased cost of transporting these construction materials from the production facility to the retailers and from there to the homeowner’s location.
This increase in the cost of procuring and shipping the construction materials will, of course, be passed on to the consumer resulting in a higher net cost of their home improvement project. The gas price hike will also increase the daily rent charged by companies for lending machinery such as bulldozers or excavators, provided that they are needed for your project.
Not to forget, many of the construction materials used in home improvement projects, such as vinyl sidings, PVC pipes, adhesives, etc., are derived from oil. With the global price of oil skyrocketing, these materials will also get more expensive. Bearing this in mind, one can clearly see the correlation between the gas price in the US and the economics of the home improvement industry.
Effect of Gas Prices on the Timeline of Home Improvement Projects
The rapid spike in the gas prices has affected the running cost of the entire network of industries linked to the home improvement industry. From construction material manufacturers to the trucking and shipping companies, each segment has been adversely affected by this change and, therefore, is facing fluctuations in its operations.
To adjust to the new gas prices and achieve a profit-to-cost ratio high enough to stay in business, manufacturers, for instance, have increased their pricing. A higher price, however, makes the products less affordable and fetches a lower demand, leading manufacturers to lower their production in response to the drop in demand. Other industries that are a part of the network will have adopted similar measures as well. The end result is that the entire supply chain of materials and products involved in a home improvement project will be disrupted.
This means that the home improvement industry is suffering from a shortage of construction materials, and those that are available are priced well beyond what you would pay for them under normal circumstances—because of this, procuring materials that are fairly priced and enough in quantity has become quite challenging leading to unspecified delays in home improvement projects.
Increasing Gas Prices Have Caused the Profit Margin of Contractors to Grow Thin
With costs associated with home improvement projects increasing alongside gas prices, contractors are forced to choose between compromising their profit margin or quoting their customer’s exceptionally high costs for their services.
Good contractors generally try to strike a balance between the two choices by pricing their services just high enough to keep them affordable for their customers without completely forgoing their profits. However, if material, labor, transportation, and other related expenses continue to rise, the home improvement industry may be driven to the point of collapse.
Michael Gailliot Homes – Your Dependable Real Estate Agents in Alexandria, VA
Rising gas prices in the US have greatly impacted the home improvement industry, deeming it an uncertain investment. On the other hand, the real estate market remains unaffected and might prove to be an excellent investment for your future. With properties in Alexandria, VA appreciating in value by the day, this is the best time to find the home of your dreams.
Michael Gailliot Homes offers you the finest and most reliable realtor services in town. Our team of real estate agents in Alexandria, VA, has over 20 years of experience in the industry and will serve as the perfect guide to find a home in this ever-changing American real estate market. Call us now, and let’s find the home of your dreams together!