House Price Declines: Buy the Numbers

[c1ue]

Re: House Price Declines: Buy the Numbers

2. I'm not following the connection between ZIRP and either of the two energy-source alternatives. For what it's worth, I think the successful energy companies will be those that develop new drilling technologies as well as those that develop alternative energy sources that are profitable without subsidies. Although I believe cheap oil has peaked, I am fairly confident that Americans have quite a bit of room to increase their efficiency to delay the adverse effects of any sudden price spikes. Wise policy would allow us to exploit existing resources only if efficiency standards improved, e.g., open new leases for each "x" percentage improvement in CAFE standards.

I should point out that improvement of CAFE standards doesn't necessarily yield the scale of improvements you may have in mind.

In the 1975 to 1985 period, CAFE standards as well as high oil prices led to an overall decade long drop in US oil consumption.

However, in 1975 the average MPG was 12.9. CAFE in 1985 was 27.5 (from an 18 CAFE in 1978)

http://www.csa.com/discoveryguides/e...g/overview.php

Assuming that Americans drive 15000 miles a year - the difference meant a savings of 617.3 gallons per car per year, more than a 50% reduction (15000/12.9 = 1162.8 - 545.5 (=15000/27.5))

Today the average MPG is around 24.6 from a peak of 26.2 in 1987

http://en.wikipedia.org/wiki/Corpora...rent_standards

Let's say the average MPG is raised to 33 implying a CAFE standard of 36 or higher.

The above calculation for 15000 miles/year driving then becomes: (15000/24.=)609.8 - 454.5(=15000/33) resulting in a total savings of 155.3 gallons per year per car and a 25.5% reduction.

Having an average CAFE of 33 or higher also pretty much guarantees the outlawing of SUVs and other light trucks.

To summarize:

A more than doubling of CAFE standards from 1975 to 1985 resulted in a halving of automotive demand for oil via a doubling of average MPG as well as a per car savings of over 600 gallons of gasoline per car per year.

An increase of present average MPG by 34% would only reduce consumption of gasoline by 155 gallons per year, a bit over 25% reduction.

The use of oil for personal transportation via the model of one car per person is simply far too wasteful of oil under any type of high oil price scenario for Americans to be able to compete.

CAFE type conservation efforts will not help enough.

[Starving Steve]

Re: House Price Declines: Buy the Numbers

Don't mistake me for a renter hoping to score a lowball sale. We've owned our home since 1991 and can handle our mortgage with some cushion for emergencies. So I hope I'm wrong. That said, let me try to answer your questions:

1. ZIRP means rates have nowhere to go but up. If buyers get used to payments at 5%, a mere 1% rise will increase their payment by 20%. A rise to the historical average of 8% (over the last 30 years) would almost double monthly interest payments. Although many assume that such rates could not possibly exist without accompanying inflation (which would raise the value of their home), it need not be so. There are many economies that have experienced high rates, high unemployment and falling real estate prices simultaneously, including ours in the early 1980's. So I'd still rather be a renter under a ZIRP regime, at least until values drop to a level where the spectre of future rate rises is less risky.

2. I'm not following the connection between ZIRP and either of the two energy-source alternatives. For what it's worth, I think the successful energy companies will be those that develop new drilling technologies as well as those that develop alternative energy sources that are profitable without subsidies. Although I believe cheap oil has peaked, I am fairly confident that Americans have quite a bit of room to increase their efficiency to delay the adverse effects of any sudden price spikes. Wise policy would allow us to exploit existing resources only if efficiency standards improved, e.g., open new leases for each "x" percentage improvement in CAFE standards.

I think "wise policy" would be to flood the entire energy market with cheap hydro-electric power, cheap atomic-power, cheap natural-gas, oil from everywhere including the sea-floor, up-graded oil from tar-sands, maybe even synthetic oil from coal, and then a little wind-power in Wyoming or in southern Alberta or in eastern Colorado to just decorate the landscape. I think "wise policy" would be to tell Iran to keeeeeeeeeeeep their oil because we don't want it.

I think "wise policy" would be to build extra hydro-dams, extra atomic-power plants, fuel efficiency in everything, plus natural-gas, plus deep-sea oil, plus synthetic oil. The policy would not be to "muddle-thru" but to push the energy price in this world toward zero.

When people are starving, I don't give one sh*t about bird-habitat or salmon-habitat or the latest fad in green-tech. When people are starving, this will be done! The world energy market will be flooded with cheap energy, and then we will put even more energy onto the market to make a subtle point --- for the slow-learners.