More Drop in Housing Starts = More of A Good Thing

September 18, 2008

An interesting picture on housing starts. The fact that starts are continuing to drop nationwide is a good thing. There’s a supply imbalance out there, and the best way to deal with it is to stop building new housing for a while. Interestingly, though, housing starts in the West are up considerably. Not sure what to make of that. Could be a sign of renewed enthusiasm in the West, an indicator that companies in the trenches see signs of demand. It’s certainly still hard to get financing to build housing in the West, so the people pulling permits must be pretty optimistic.


Oil Price Predicted To Drop Into the $90’s

August 18, 2008

A bearish prediction on oil, dropping into the $90 range, with a good range of arguments. Basically, the same recessionary factors that are hurting Vegas are helping to drive oil prices down.  Good news for air travel.

Thanks in no small degree to a drop in global demand, oil prices, after breaching $147 per barrel, have tumbled more than 23 per cent to below $113. Barring a big hurricane in the Gulf of Mexico or a disruptive geopolitical event, oil prices appear to have peaked.

World oil consumption is now growing at a significantly lower pace than had been imagined a year ago.

In our judgment, the IEA’s forecasts for emerging markets will turn out to have been far too optimistic by year’s end and OPEC countries will again complain about the inability of oil importers to guarantee sufficient demand growth to warrant investments in expanded production capacity.

Complacent assumptions that lower prices will bring renewed demand growth ignore the reality of the demand response to extreme price shocks. The shocks stimulate the world to go beyond temporary reductions in discretionary consumption, and make large irreversible investments in energy saving technologies, permanently changing the structure and efficiency of transportation, industrial, commercial, and residential sector demand.

The old adage that “nothing cures high prices like high prices,” is as true today as in the 1970s. Those cures don’t only involve the supply side; the response from demand is as critical. We expect prices to stabilize at $90-100 per barrel but to still stimulate structural demand adjustments – we don’t foresee world demand growth exceeding 1mb/d per year for some time.

Case – Shiller Update

May 29, 2008

Las Vegas Case-Shiller index drops to 169. That data reflects March pricing and the drop from February. My prediction is that we’ll have one more good-sized drop in the index when it comes out at the end of June. Come end of July, though, the index will only go down if the sales that happened in the month of May were at lower prices than the sales that happened in the month of April. I predict that didn’t happen (interesting use of tenses there, no?). My prediction is that based on anecdotal evidence that foreclosures in April sold at lower prices than foreclosures in May, that we’ll see a leveling off of Case-Shiller in Las Vegas. That should get significant national attention, because I predict at the same time that most other parts of the country will continue to see price declines. You read it here first!

Chart courtesy of Calculated Risk: