Overbuilt market...

"Overbuilt Market creating modern ghost towns"
-View the MSNBC Article here.

Peak oil is a strange phenomenon. One year ago oil at $100 a barrel would have been inconceivable for all but a few commentators. And yet here we are, oil is hovering around $115 a barrel and people are actually celebrating! And so the cycle has begun, with a run up of prices (it was only a month ago that oil hit a high of $147 a barrel), demand destruction, followed by a drop in price...then the inevitable run up of demand as people adjust to the new price regime and the following run up of price. And so on and so forth. IT DOESN'T HAVE TO BE THIS WAY. If we let the market dictate price then it will be this way, and probably much worse. If government were to put a floor on gas prices, then people could actually begin to act like rational consumers instead of following the completely irrational marketplace for global crude.

Back to the headline: The 'Overbuilt' Market of homes. Home builders are going out of business because of increasing costs and decreasing demand for houses built on the periphery of cities.
There's even a website devoted to this: The Home Builder Implode-O-Meter, monitoring the decline and fall of the home building industry.

It makes me wonder what kind of cycles we will start seeing with the fluctuation in the price of oil and gasoline. As gas gets cheaper, will ex-urban houses enjoy a brief renaissance before being crushed once again by the run-up in price? Or will buyers wise up after the second or third boom and bust cycle?

I think what we're probably witnessing is the extreme boom and bust cycle returning to America. Where during the 1980s and 1990s the US enjoyed a relatively stable economy untroubled by massive oil shocks, the economy of the new millennium will not be so lucky. We don't have the global surplus of crude oil to stabilize the world (or local) economies, not like we did in the 1970s.

MSNBC: fuel costs shape Suburbs

In the past two days I've read an article each on CNN.com and MSNBC.com about how gas prices are affecting the 'American Dream' aka the alleged desire that every American has to live in a far-flung suburb and spend the better part of two hours ferrying from home to job to social outings.

Its never been my dream, and even people I talk to who live in the suburbs rarely express some fondness for spending so much time locked in automobiles. More often then not, it was about economics, plain and simple. The inexpensive houses were located far from the city center, and driving 20 miles one way to commute was not a big deal when gas was less than a dollar a gallon. Even now, such commutes are pinching consumer spending but have yet to force many people out of their homes.

Yet the economics are changing, and so are the behaviors of those looking to buy homes. From MSNBC.com:

Real estate agents, transportation officials and industry surveys indicate that home buyers are placing more importance on cutting their gas bills and commute times than they have since the oil shocks of the 1970s.

Full article here

Honestly I've been praying for the death of the suburbs for as long as I can remember. I realize a need still exists for affordable housing, and that much investment will be lost due to the devaluation of inexcusably far-flung suburbs, but honestly, isn't it about time that people start concentrating around downtowns and around rail stations. Unfortunately most of the homeowners who will be hurt by the suburban housing downturn were part of a system that was bigger than them: that was designed to grant risky loans in exchange for the illusion of infinite growth and ever-growing housing values.

It will certainly be interesting as it dawns on Americans that endless freeways, sprawling suburbs and 2 hour commutes are a piss poor investment at best, and at worst a ruinous mal-appropriation of resources. James Howard Kunstler calls the American suburbs "the biggest misallocation of resources in human history".

Peak Lending?

"Until mortgage lending picks up again, the housing market will have a hard time getting back on its feet. But until home prices stop falling, lenders are going to remain leery about writing a mortgage on an asset that is still losing value."

And thats the entire problem with our economy

From this article on MSNBC.com:

Can anyone see the problem here? Our entire economy depends on GROWTH. Not stagnation, not contraction, but growth. Can our economy grow in a sustainable manner, especially without growth in energy usage? I seriously doubt it.

Why US housing is losing value is a tough question to answer. I would imagine (and I'm no expert) that falling wages and a depressed economy have something to do with it, in addition to the increasing price of EVERYTHING else (via inflation or just plain supply and demand as with gasoline).

I think the question on everyone's mind is, what is the US housing stock worth without transportation to get to it? The answer is undoubtedly 'mostly worthless' except for a small core of communities with walking and biking access to essentials.