My Mortgage Blog

As you well know, the decline in the price of a barrel of crude oil is a boon to the American economy. For people like you and me, a lower price at the gasoline pump means we can fill our tanks and end up with more spending money afterward and, of course, we can drive to the mall or other shopping centers and spend that so-called disposable income on Holiday gifts. It costs most businesses less to do their business. And another way of putting that is: After all is said and done, most businesses get to keep more of their profits, since they don't have to spend as much on shipping and other fuel costs.

So if everything about lower oil prices is so wonderful, why did the Dow Jones Industrial Average lose 268.05 points on Wednesday? Clearly, someone isn't all that happy about lower oil prices. Why? For one thing, the oil firms, both the biggies like Exxon and the smaller companies that do the exploring and drilling, are losing money at the moment. Oil prices fell to a five-year low on Wednesday. It seems possible to be overjoyed at that news, but very few people are. Oil workers are facing layoffs, oil companies are cutting their spending, and there are a lot of long faces in the country's recently hot oil markets, in Texas, in the Midwest, and elsewhere.

Often overlooked in discussions is the worrisome reason behind oil's price decline. Quite simply, the world economy, not just the oil marketplace, is slowing. (One of the reasons, by the way, is that the U.S. has retrieved a leading share of the oil market, after years of weakened oil production. Learning to frack, to shake oil from rock, has proven to be immensely profitable.)

So the U.S. is no longer hungrily buying up as much of the world's oil production as it was for many years. And world economies, many of which are dependent on oil sales for their strength and health, are languishing.

Still, a lot of people are benefiting from the oil price declines and they're not all proverbial fat cats. As The Wall Street Journal asserted Thursday morning, Lower gas prices will benefit the poorest households, which spend more of their income on gas, and on rural drivers who travel longer distances. Looking at the whole American economy, Goldman Sachs believes the oil situation, which is expected to last for quite some time, could add $125 billion to the economy, not to mention the amount in advertising revenues spent to capture as much of the windfall as possible.

The economic web is far-reaching here. McDonald's, for example, is slicing its menu and changing the way its foods are made. The market share of the fast-food firm, as you know, has been plunging as quickly as have oil prices (no obvious relationship, of course, except that McDonald's, no doubt wisely, wants to become more of a restaurant and less a purveyor of toys and rather uninspiring menu choices. What this suggests, to me at least, is that the current battle for market share, whether between fast-food emporiums that need more than low prices and gimmicks to bring in clientele or between nations like the U.S. and Russia is a bad thing. Surely a little more spendable cash will benefit our economy at the end of the day.

And will it help our real estate market? Hard to see how it won't, from the decreased cost of driving clients out to see houses to the greater sense of personal wealth that people will feel as the low gas prices persist. Sounds, perhaps, like the basis for a more normal real estate market, with investors out wondering what to do with their bonds and where to put their investable money. Happy New Year, perhaps.