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Tuesday, January 05, 1982

01.05.2007 - Friday Open Thread

This is your open thread for Friday, January 5, 2007. Please post random links and off-topic discussions here.

19 comments:

synthetik said...

Our energy situation - How do you think peak oil will affect housing?

Seattle Times - Front Page article about SPOA (Seattle Peak Oil Awareness) Group.

I went to the meeting last night and there were 62 people!

synthetik said...

"paying off everything but their mortgages"

I supposed that's because they can't or possibly hoping that someday the banks won't care? Debt always has to be repaid.

FinanceGuru said...
This comment has been removed by the author.
E-sidedave said...

From today's Times: Don't blame growth management for higher housing prices

Christina said...

That's why many members are trying to get rid of debt by paying off everything except their mortgages.

Actually, a member of SPOA and I had an e-mail conversation in September, and he advised me to pay off my mortgage as soon as possible.

I keep meaning to go to SPOA meetings, but I'm afraid to share the road with Blackberry-playin' or cellphone-yappin' drivers of humongous vehicles without their lights on at night.

It's healthier and eventually cheaper to grow your own food. It's healthier and eventually cheaper to bicycle more and drive less. It's nice to have your own garage to store your bicycles and cheaper transportation, and it's nice to have land for growing food.

Oil and natural gas prices are going up, they are not really coming down. If free marketeers are correct in surmising the change in price is due to supply and demand, then one should assume that supply is dwindling and/or demand is increasing.

I'm not an alarmist or environmentalist freak -- Y2K didn't bother me in the slightest, and although I read James Kunstler, he seems hysterical at times. But I believe in peak oil -- there is no real reason for me not to, I'll be saving money anyway, with oil and gas prices rising.

Google for "New Urbanism" and "James Howard Kunstler" for opinions of how peak oil will affect housing.

SustainLane has a list of the ten top US cities to least be fucked over by Peak Oil:

1. New York, NY
2. Boston, MA
3. San Francisco, CA
4. Chicago, IL
5. Philadelphia, PA
6. Portland, OR
7. Honolulu, HI
8. Seattle, WA
9. Baltimore, MD
10.Oakland, CA

I think some people will move to these cities, keeping the demand for housing high.

synthetik said...

On the plus side it seems that renting would enable you to be completely debt free (assuming you paid off all your other debts); and allow you to freely move around to the best location possible, possibly overseas.

Conversely, it has been suggested that landlords may raise rents to astronomical amounts in order to pay the debt they're holding. I'm under the impression that rents are more based on real supply and demand and not subject to the whims of the property owners. In areas like San Francisco and Manhattan (and other population dense and desirable areas) rents are extremely high - the demand is there and housing is scarce.

Housing (shelter) is a NEED, but owning is a want.

So the assumption on my part is that rents will fall into line with whatever the market can bear at that point. Rents have pretty much kept pace with inflation from what I can tell, whereas the residential housing and condo markets has been fueled by speculation and massive liquidity.

So if wages and prices fall across the board, housing (rental) affordability should go down too. Rents will either fall into line or people will move to cheaper location.

On the other hand, if you own a house the theory is that no one can either take it from you or kick you out. You own it. But even if you own your home outright, you wouldn't be as able to move locations as easily. In addition, it is possible that your property could be seized by the government in some fashion. (raise your taxes)

And what if you have a mortgage? So, if prices and real wages drop across the board what about debt? If your mortgage on your $400K conventional 30 year is $2661 today, it will be $2661 (or about) next year as well. Debt always has to be repaid. Maybe the government could bail out the 77,000,000 homeowners with 0% interest rates lowering the payment to $1,111?

How will you pay your mortgage if wages are down and jobs are scarce?; and will you be able to sell your house if you decide that it's much safer in New Zealand?

Personally, I don't think anyone is almost any situation is going to come through this unscathed. My goal is asset protection and securing the best possible future for my family and friends.

What do you think? What will happen to mortgage debt, rental prices, property tax structures? Will "owning" of property become less important while more "communal" type arrangements make more sense? Will property owners become fuedal lords and renters be the serfs?

Geon said...

We're all screwed if peak oil hits us anytime soon...so forgetaboutit.

I read articles about it a couple years ago, and it had me thinking about running to the hills and hunkering down. However, over time, my fear has waned. I'm more concerned with terroist now.

Hence, I now drive biodiesel rigs (passat tdi) and use a lot less petrol products, gas & heating oil, etc. Actually, yanked the oil furnace out of the house next door, after we bought it. So, I'm trying to do my part.

Peak oil advocates paying off everything, including your mortgage--the banks will call you in your notes regardless of credit standing.

Crazy world. We have no kids.

synthetik said...

>It's healthier and eventually cheaper to grow your own food. It's healthier and eventually cheaper to bicycle more and drive less. It's nice to have your own garage to store your bicycles and cheaper transportation, and it's nice to have land for growing food.

I agree with these points, however is it possible to grow enough food on your 60x120 lot? What if your neighbors get hungry?

>I'm not an alarmist or environmentalist freak -- Y2K didn't bother me in the slightest

Y2K was an actual problem that could be quantified and fixed. Billions of dollars were spent and the situation was resolved.

If you study Peak Oil (the end of cheap oil) you begin to realize that there are no easy solutions. Renewables won't take the place of cheap oil which is what our entire civilization is currently based around.

>James Kunstler, he seems hysterical at times.

Did you read "The Long Emergency"? While I enjoyed that book, "Powerdown" by Heinberg offers hope and might be worth the read. "Powerdown" is the concept of people/community working together to lower their need for energy dependence and help make the change gradual vs. other scenarios such as "Last Man Standing" (which is a likely gov't response and outcome -- possibly already playing out in Iraq right now)

Geon said...

They also say todays currency will be almost worthless since it's tied to oil and not gold as in the past.

Only the rich will will surive, but they will all run out of bullets eventually. LOL>

Well, that's what I recall reading, no expert on the subject by any means.

wreckingbull said...
This comment has been removed by the author.
FinanceGuru said...

The economy is still strong. Today's job report shows that 167,000 jobs were added in Dec (above the 115k est), 4.5% unemployment rate (in Europe they would be happy with twice that rate), and workers incomes rose 0.5% last month (for a YOY increase of 4.2%). Got all these facts from the WSJ.

"In all of 2006, payroll employment increased by 1.8 million jobs, an average of 153,000 jobs a month, according to the Labor Department report"

"The Labor Department report showed job losses in the troubled manufacturing and construction sectors eased in December. U.S. manufacturing firms cut 12,000 jobs. Construction firms, perhaps benefiting from warm weather, shed only 3,000 jobs. In November and October, manufacturing had dropped 61,000 jobs and construction slashed 53,000 positions."

This means that the US economy is still strong, yet slowing in an orderly way, but not crashing. Also very few economist predict a recession this year. Good news for the economy!

The Tim said...

Also very few economist predict a recession this year.

Very few economists in 2005 were predicting YOY decreases in nationwide median home prices in the following year (2006).

Oddly enough, I don't put much stock in economists' predictions.

Grivetti said...

I think some people will move to these cities, keeping the demand for housing high.

Entertaining notion, but silly...

A peak whole depression will bring the smackdown across the board. Has nothing to do with available public transportation or recycling. Everything's intertwined globally...

*Peak oil would hobble Boeing, probably reducing it to a shadow of its former self.

*Reduction in oil would make fuel transport costs to the PNW soar, since there's no pipelines across the Rockies.

*Transportation to/from Seattle is more expensive.

*Reduced economic activity along the Pacific Rim would be a region-wide recession...

Sorry, but bio-diesels and Prius' aren't going to save us folks

Grivetti said...

Jared Diamond in Collapse, outlines the 5 factors that lead to a societal collapse...

1) Soil Erosion
2) Deforestation
3) Climactic Changes
4) Trade routes cut-off
5) Invasion by outside hositle forces

I'd say we're in the clear on 1), and 2) for sure...

While 5) seems pretty unlikely, 3) is a world-wide problem, although it could get especially acute in the Northwest, which would lead to severe draughts, and increase factors 1) and 2)

3) Would be a direct consequence of expensive oil and would severely damage the PNW, since we're ever so dependant on transportation of goods for our survival.

A little off the the Real-Estate topic, but trying to prove a point that Seattle's viability is intricately intertwined with the nations and the worlds... they hurt, we hurt.

BTW, we'll never run out of oil, it'll just get to be more and more and more expensive..

Chad said...

>off Real Estate topic

If you understand Peak Oil you realize how integral it really is to real estate locally. Does it even make sense to own (as I argue above).

Seattle is globally dependent (as is the rest of the industrialized world)

I heard the governor speak a few months ago and she made the statement that 30% of all business in PNW is dependent upon global trade.

Globalization was only made possible through our one time endowment of inexpensive oil.

Transportation will most likely be reduced to more efficient means such as electrified trains (running on nuclear or coal generated electricity, also finite resources).

Cheap crap from China won't be so cheap anymore.

I agree, we'll never run out of oil, coal, natural gas, wind, biomass, uranium... but when the CHEAP stuff is on the downslope (after peak), that's when it could get interesting.

If you want to get involved locally, SPOA has a town-hall type meeting the 1st Thursday of each month in Phinney Ridge.

I like the community aspect: let's say this doesn't somehow become an issue -- at least I'll make some friends. The group has regular "lifeboat" type events where members give their time to help other members work on sustainable-type projects at their homes...

You can have a garden installed, zero scape your yard, install a solar heated water system, rain water collection system, etc... all for FREE.

www.seattleoil.com

T,V & Mr.B said...

Ok, Mr. Finance Guru,
I don't know when you are gonna get it. I think you should pretty soon as you are a finance wiz right? "the economy is good" doesn't mean that housing prices are going to continue to increase. The economy is good in many places that housing has slumped. In this case, it may actually mean that people might even take their money out of real estate and begin putting back into the stock.

Maybe I am misinterpreting your comment for more than simple information purposes, but since you posted it on a blog that has the housing market as its topic, I would presume it is to state that it means housing will remain strong?

Joe Consumer said...

Off topic as well, but germaine to the discussion.

The US will fight and manipulate every last sovereign nation it needs to in order to continue tapping oil supplies to fuel its consumer lust.

I often thought this to be conspiracy talk, but after reading the book "Confessions of an Economic Hit Man"

This is how author John Perkins describes his former role as a EHM:

"Basically what we were trained to do and what our job is to do is to build up the American empire. To bring -- to create situations where as many resources as possible flow into this country, to our corporations, and our government, and in fact we’ve been very successful. We’ve built the largest empire in the history of the world. It's been done over the last 50 years since World War II with very little military might, actually. It's only in rare instances like Iraq where the military comes in as a last resort. This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men. I was very much a part of that.I was initially recruited while I was in business school back in the late sixties by the National Security Agency, the nation's largest and least understood spy organization; but ultimately I worked for private corporations. The first real economic hit man was back in the early 1950's, Kermit Roosevelt, the grandson of Teddy, who overthrew of government of Iran, a democratically elected government, Mossadegh’s government who was Time's magazine person of the year; and he was so successful at doing this without any bloodshed -- well, there was a little bloodshed, but no military intervention, just spending millions of dollars and replaced Mossadegh with the Shah of Iran. At that point, we understood that this idea of economic hit man was an extremely good one. We didn't have to worry about the threat of war with Russia when we did it this way. The problem with that was that Roosevelt was a C.I.A. agent. He was a government employee. Had he been caught, we would have been in a lot of trouble. It would have been very embarrassing. So, at that point, the decision was made to use organizations like the C.I.A. and the N.S.A. to recruit potential economic hit men like me and then send us to work for private consulting companies, engineering firms, construction companies, so that if we were caught, there would be no connection with the government."

synthetik said...

I read "confessions of an economic hitman" too, good stuff.

How do you think we made the "deal of the century" with the house of Saud?

The most likely scenario, although grim, is "Last Man Standing". At some point we'll stop making up false reasons to go to war and just be honest "we want your oil, either give it to us at a fair price or be turned into a glass bowl!"

Roy Smith said...

We're all screwed if peak oil hits us anytime soon...

Peak Oil is already hitting, only it isn't clear that it is happening because it is the sort of disaster, like climate change, that will take years and decades to unfold rather than hours or days. The title of Kunstler's book, "The Long Emergency", is very apt. Also, like climate change, it will be difficult to untangle the effects of Peak Oil from all of the other changes going on simultaneously in the world.

The economy is still strong. Today's job report shows that 167,000 jobs were added in Dec (above the 115k est), 4.5% unemployment rate (in Europe they would be happy with twice that rate), and workers incomes rose 0.5% last month (for a YOY increase of 4.2%).

This may be good news for the economy, but it is not good news for the housing market, as any chance of the Fed lowering rates has been eliminated and there is a significant chance that they will have to tighten some more.