Natural gas and heating oil costs are expected to rise considerably as the nation slides into winter, according to a Wednesday New York Times story. (Rising heating oil prices “could be New England’s own Katrina,” wrote one Vermont newspaper recently.) In New York City, these increases could affect building sales as traders must deduce future heating costs not based on today’s numbers–or last year’s–but on the anticipation that such costs are going to keep going way up. These deductions affect the pricing of buildings on the sales block.
Right now we are seeing, for the first time since drilling began in the 1850’s, prices climbing for 7 consecutive years. When we are underwriting apartment buildings now, we can no longer rely on last year’s fuel bills to forecast next year fuel expense. We are underwriting using today’s price to account for the significant increases we have seen. Not too long ago fuel was $750 per unit and today it can be as much as $2,000 per unit.
Just what New York property investors need, right? Another variable in an already uncertain market. Bundle up!