Where Home Prices Have Become Quite Dear
Bloomberg reports on Norway. “Norway’s government disregarded a recommendation from the nation’s financial regulator to boost the counter-cyclical buffer for banks by the end of next year to guard against housing market and debt risks. Plunging crude prices are damping growth prospects for western Europe’s biggest oil and gas producer. The counter-cyclical buffer will be kept at 1 percent from June 30, the Finance Ministry said in a statement. That was also the recommendation from the central bank, while the Financial Supervisory Authority wanted a buffer of 1.5 percent by Dec. 31, 2015, citing a ’significant risk’ from growth in household debt and house prices.”
“‘The Ministry has among other things put emphasis on increased uncertainty about future economic development,’ according to the statement. ‘Housing prices are rising at the same time as there are signs of a slowdown in the Norwegian economy, particularly as a result of the fall in oil prices.’”
Full Time Whistle on Scotland. “Robin Allan, chairman of the independent explorers’ association Brindex, has warned the oil and gas industry may not recover from its current crisis as millions of pounds disappear from Scotland’s economy. A property specialist said the oil and gas crisis was having an impact on the housing market. Julia Willett, an associate in Strutt & Parker’s Banchory office, said: ‘The drop in the price of oil and redundancies across the oil industry has reduced confidence in the city of Aberdeen and Aberdeenshire. It has shaken our core market, which in the past has been shored up by oil industry workers.’”
The Calgary Herald in Canada. “Crude oil and other commodity price volatility has returned as 2014 draws to a close, negatively impacting the near-term outlook for resource-based economies in Canada, particularly Alberta, says a new report by TD Economics. Derek Burleton, deputy chief economist with TD, said Alberta has a very important share of its economy tied to oil. ‘There’s a pretty clear link between oil prices and the near-term direction of the Alberta economy,’ he said. ‘Lower incomes and profits from the energy patch will be felt in capital spending plans and increasingly spill over to other areas of the economy as 2015 progresses.’”
“The report said Alberta’s housing market, which has been among the hottest markets, will likely experience a significant slowing in resale activity and housing starts over the forecast horizon.”
From Reuters. “After leading the U.S. economic recovery out of recession, some of the nation’s top oil states are showing early signs of a slowdown as a result of the plunge in crude prices. In Houston, Texas, the first oil industry layoffs have been announced, with realtors there predicting a sharp decline, up to 12 percent, in home sales next year.”
“Alaska’s 2015 fiscal year budget revenue forecast will have to be lowered by almost $2 billion, according to Fitch Ratings. States such as Texas, North Dakota, Alaska, Oklahoma and New Mexico are all likely to feel strains next year, Wells Fargo Securities municipal analyst Roy Eappen said. Russell Evans, an Oklahoma City University economist, said the 1982 oil crash has left deep scars in Oklahoma where oil and gas industry accounts for about 20 percent of all jobs and two-thirds of those created since 2008. The history of booms and busts keeps many on edge. ‘There is a fair amount of anxiety here,’ he said.”
Fuel Fix on Texas. “Data from Barclays that shows Texas housing permits have followed U.S. benchmark crude prices in long downward-sweeping arcs – as they did dramatically in the oil bust three decades ago and in the financial crisis five years ago. If West Texas Intermediate crude ‘remains at $60 through year-end 2015, this will be a decline on par with the 1986 and 2009 events that coincided with significant declines’ in Texas housing permits, Barclays analysts wrote. The British bank said the connection between crude prices and Texas housing is ‘likely due to collateral damage on Texas’ energy-dependent economy.’”
The Midland Reporter Telegram in Texas. “Midland’s average home prices topped $300,000 for November, the third time that has happened and the second time this year, according to numbers from the Real Estate Center at Texas A&M University, with November prices growing by almost 14 percent compared to November of last year. The rise in home prices continues despite a drop in oil prices since June, with oil dropping from around $108 a barrel to the mid-$50s. ‘Oil prices are the number one issue facing the Texas housing market next year,’ Real Estate Center research economist Jim Gaines said. ‘It’s the big unknown.’”
The Dallas Morning News in Texas. “Texas is the nation’s largest oil-producing state, and many companies related to the oil industry are based here and employ many people who spend money on goods and services provided by other businesses. Oil and gas account for about 11 percent of the state’s economic output. ‘I think we’re starting to see the first impact on [energy] sector employment,’ said Boyd Nash-Stacey, economist for BBVA Compass bank in Houston. ‘It takes about a quarter for the impact of prices to affect the real economy. The main concern we have is how this spills over to the rest of the economy.’”
“Michael Feroli, chief U.S. economist for JPMorgan Chase, takes a bleak view of what an oil industry slowdown might mean for Texas. ‘We think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession” if oil prices remain low, he said Thursday in an economic research note. A slowdown also could affect the housing market in some Texas metro areas where home prices have become ‘quite dear,’ he said.”
The Longmont Times Call in Colorado. “Total construction activity in Colorado for 2015 is forecast to increase by $1.4 billion, according to the annual Leeds School report. Residential permit values are expected to return to higher levels and more units are slated to be built. A surge will also be seen in nonresidential building. ‘The economic rebound is important,’ said Dan Krische, co-owner of Krische Construction in Longmont. His company enjoyed a strong 2014 and expects more of the same next year.”
“‘We are doing projects now, this year, that if the economy hadn’t rebounded would have never been done,’ Krische explained. ‘And now we have more work in Weld County because of the oil, building warehouses and offices over there.’”
‘A second national research organization has deemed that residential real estate prices in Austin are the most overvalued in the country.’
‘FitchRatings concludes that Austin home prices are 20 percent overvalued, the highest in the nation. The ratings agency predicts a slightly downward trend in pricing in Austin, Houston and San Antonio in 2015.’
‘Houston is ranked the second most-overvalued market. “The economies in Texas are strong with economic growth outpacing that of national improvement, but these high home price levels may be unsustainable,” said Fitch Director and Analyst Stefan Hilts.’
‘In October Trulia singled out Austin as sitting on housing bubble and also estimated that the area housing prices are 20 percent overvalued. The story created an uproar with local real estate experts denouncing the data and questioning whether national analysts are “in touch” with microeconomics of a given area.’
‘Now Fitch Ratings, which provides in-depth sophisticated financial analysis, has backed up the Trulia assertations. Fitch believes some Texas markets will be negatively impacted by declining oil prices — particularly areas such as Houston and San Antonio. While Austin is less dependent on the energy sector for its economic vitality, the rapid escalation of home values in the past few years is a concern.’
“Texas’ current growth spurt is out of character with its price history,” the report states. “Fitch has struggled to find adequate support from fundamentals to explain its high, persistent growth rates.”
Ya gotta laugh at the ‘financial media’s’ hedging. Now that prices have resumed falling, it’s overvalued but only by 20%.
The implication is that the other 45% decline is behind us. Guess again.
“Now that prices have resumed falling, it’s overvalued but only by 20%.”
And when prices were rising they were considered to be undervalued. And this makes good sense if, in this world - in the RE world - price equals value.
In the price-equals-value world of real estate (and the world of stocks) if you raise the price then you raise the value. And raising the value creates an upward trend, and this upward trend tends to attract fresh money, and this fresh money works to raise the price and this raised price translates into a raised value. And this feedback loop gets reinforced over and over again until … until it doesn’t. And that’s when the trend reverses itself.
And here we are.
You cannot explain something illogical with logic.
The wise Ben Graham used to think of the stock market as a voting machine in the short run but a weighing machine in the long run.
I believe this observation is true for the real estate market as well.
“Texas’ current growth spurt is out of character with its price history,” the report states. “Fitch has struggled to find adequate support from fundamentals to explain its high, persistent growth rates.”
I guess they are saying massive price bubbles and busts are more in character in NY and SF than in Austin. I guess they expect development bubbles rather than price bubbles in Texas.
Exactly. Compared to God’s country, AKA the SF Bay Area, Austin is quite reasonable. Here I’d say we’re at least 50% overvalued (e.g. 700K houses should going for 350K, at a maximum)
Trulia estimates that the value of my property has risen by 30% since I bought it (contrast to Zillow, which zestimates a 12% increase). So now Trulia estimates that Austin is 20% overvalued on top of their own overvalued estimates?
Hope that Brett in Austin is still renting…
And not a buyer in sight for 80% of what you paid.
‘Oil prices have been in freefall in recent months, dropping by more than half since June. For energy states like Wyoming, that’s bad news. As Governor Matt Mead pointed out recently, the state has a lot of money riding on oil.’
There is going to be an absolute economic slaughter in the oil states. The Bakken will go from “bidding wars on rent” to “you cannot find a renter at any price.” I will laugh heartily as the greedy get financially decapitated.
“There is going to be an absolute economic slaughter in the oil states.”
+1 If history repeats itself your assumptions are probably correct. Not sure about Austin, TX, but I couldn’t sleep at night knowing I might need to bring $250k to the closing table. BTW, is TX a walk-away state?
‘Many fast-growing African economies depend on their growth and fiscal revenue from the export of one commodity, which is often oil, but it could be a metal or an agricultural product.’
‘This makes these African economies systemically vulnerable to any changes in the price, production or demand of these commodities. The Nigerian economy is about 95 percent dependent on oil for its foreign exchange earnings, and 85 percent for its total revenue. Oil exports account for 46 percent of Angola’s GDP and 96 percent of its exports.’
‘Falling global oil prices have decreased government incomes across the continent. The US used to be the biggest importer of African oil – before 2010 importing about a quarter of the continent’s total exports. However, US imports of African oil has now declined by 90 percent, from around two million barrels per day to 170 000 barrels per day.’
‘Most of the African producers have off-set the loss of the US oil market by increasing their exports to emerging markets such as China and India. But China is dramatically increasing its own production of shale gas and oil.’
‘China’s 12th Five-Year Plan (2011-2015) elevates local shale oil and gas production – to reduce its reliance on foreign (African) oil and gas. Astonishingly, many African countries appear not to be aware that the Chinese economy is slowing down.’
Texas?
Dallas, TX Sale Price Gains Evaporate; Down 2% YoY And 13% MoM
http://www.zillow.com/dallas-tx-75219/home-values/
Even if all other things stay the same, the numbers are going to get much uglier over the next 6-8 months everywhere because the current price will be compared against the peaking market last spring and summer.
But all things won’t stay the same because prices aren’t flat, they are declining. Bigtime. And the new home pimps can cut out the floor more and more every month.
‘Denmark may be known as one of the world’s wealthy nations, but based on figures from the national statistics office Danmarks Statistik, it is quickly becoming a less prosperous country to live in.’
‘The figures showed that since 2007 the Danish gross national product (GNP) has fallen by 4 percent and, because the population has increased by 3 percent (or 180,000 people), the total average prosperity per capita has dropped by 7 percent.’
“It’s the biggest downturn in recent times. You probably have to go back to the 1930’s for a worse development,” Steen Bocian, the chief economist with Danske Bank, told Jyllands-Posten newspaper. “The crisis we are experiencing now has been extremely deep and long-lasting.”
I’ll run out later and buy some Danish Butter Cookies!
“It’s the biggest downturn in recent times. You probably have to go back to the 1930’s for a worse development,” ??
Thats pretty profound statement there…
Fairbanks, AK Asking Prices Crater 7% YoY; Sellers Slash As Oil Bust Spreads
http://www.zillow.com/fairbanks-ak/home-values/
Fairbanks, Alaska. Now that’s a place where land should be free, and housing cheap.
Alaska has the same high house loan caps that exist in California and Hawaii.
West Fargo, ND Sellers Slash Prices 15% YoY As Fracking Boom Busts
http://www.zillow.com/west-fargo-nd/home-values/
That’s a shame.
Denver, CO Sale Prices Plummet 9% YoY As Declines Spread; Sellers Slash
http://www.zillow.com/denver-co-80227/home-values/
Santa Cruz County, CA Sale Prices Dive 3% YoY As Falling Prices Emerge Statewide
http://www.zillow.com/santa-cruz-county-ca/home-values/
“The Data: Get Ready for the Return of Declining Home Prices”
http://www.shtfplan.com/headline-news/the-data-get-ready-for-the-return-of-declining-home-prices_06052014
“China’s Precipitous Housing Decline”
https://worldfinancialdigest.com/contents/asia/1893-china-s-precipitous-housing-decline
” Prices have declined in all 70 of China’s major cities…credit lines have dried up as fearful banks and trusts vacate the sector. Prices in China’s property sector seem unsustainable, as apartments in major cities currently run at 20x an average recent college graduate’s pay.”
I cannot imagine how one pays 2,000% of their salary for a condo.
“I cannot imagine how one pays 2,000% of their salary for a condo.”
I can think of one way.
Here’s what you need to do:
Stop by your local bank branch and ask for The Dotted Line Special.
Mr. Banker is a suicide bomber really a good credit risk?
(IraqiNews.com) On Saturday, an Indian newspaper revealed that the Malaysian elements of the so-called Islamic State in Iraq and Syria (ISIS) are taking bank loans to finance their trips to Iraq and Syria.
The Indian newspaper ‘The Hindu’ said in a report today followed by IraqiNews.com, “The Malaysian police in Kuala Lumpur recently arrested a 30 year old man for taking out a loan to join terrorist groups in Iraq and Syria.”
The newspaper explained, “Police investigations revealed that five other sympathizers with ISIS were stopped and prevented from traveling too, because they withdraw loans from banks to finance their trips to Iraq and Syria.”
The newspaper report said that the anti-terrorism unit in Malaysia will inform the banks about the need to stop giving out loans to those who strong suspicions of financing ISIS hover around them.”
The latest news on China from China Daily today:
Deposit rates are edging up and housing prices in first-tier cities are rebounding one month after the central bank cut the benchmark interest rate, reported China News Service on Monday.
While Beijing Bank, Minsheng Bank, SPD Bank and Industrial Bank raised deposit rate to 1.1 times of the benchmark, CITIC Bank and Bank of Ningbo, along with Beijing-based four State-controlled peers boosted their offer to the 3.3 percent ceiling.
To stimulate the economy, the People’s Bank of China announced a rate cut on Nov 21 for the first time in more than two years. The one-year lending rate fell 40 basis points to 5.6 percent and deposit rate down 25 bps to 2.75 percent.
At the same time, the central bank loosened the maximum interest rate banks can pay depositors to 20 percent over the benchmark from 10 percent.
The property market has shown signs of stabilization since the rate cut, as decline of housing price eased in November.
Price dropped month-on-month in 67 of the 70 cities tracked by the government, compared with 69 in October, with the largest price fall among them dropping from 1.6 percent to 1.4 percent, figures released by the National Bureau of Statistics showed on Thursday.
“The rate cut should spur residential property sales in the next few months in conjunction with the PBOC’s mortgage policy relaxation,” said Franco Leung, senior analyst of Moody’s, in a report in November.
The Moody’s expects nationwide residential property sales will decline less than 5 percent year-on-year, which is “weak but less dramatic than the 9.9 percent decline recorded during the first 10 months of 2014″.
Chinese stocks advanced to a three-year high three days after the rate cut. The benchmark Shanghai Composite Index rallied to its highest level since November 2010 and closed at 3,108.6 on Friday.
Plummeting oil prices and cratering housing prices. What’s not to like?
Interesting read of that article, not based in reality but interesting read.
The problem with the inane communist party “news releases” that you post is that they are hopelessly locked in doublespeak and contradiction. House prices are in free-fall in all of 70 cities by other sources of information. Banks are getting a break on both ends, paying less interest and charging more interest. This is a signal of rising defaults. Air box housing at 20x “graduate” income.
This does not mean that prices are going up, unless you are drinking the koolaid big time.
Moody’s backs their numbers up and it shows a small correction in prices not a crash. The total decline for a year is what they were going up in a month a few years ago.
Multiple commodities implosions and rapidly declining housing prices in China is positive economic news indeed.
Obama’s war on Russia is just making it turn more to China for capital and trade. China continues to get stronger while we weaken our economy by harming our domestic oil industry and all the rest of industries by forcing up the dollar.
Meanwhile:
China is poised to become a net capital exporter for the first time, with total overseas direct investment exceeding foreign direct investment by the end of the year, the head of a top Chinese think tank said at a forum on Sunday.
“China is transforming from a major commodity exporter to a capital exporter,” said Zeng Peiyan, chairman of the China Center for International Economic Exchanges.
“The large going-out of Chinese capital means the country is able to participate in the restructuring of global industrial, supply and value chains, which are the keys to foster new competitive advantages,” he said.
Zeng, also a former vice-premier and top economic policy planner, predicted that the economy will stabilize in 2015, supported by deepened reform and faster development of the service sector.
The middle-income group will be the main force to stabilize domestic demand, he said. “As the group is expanding, 600 million people will be middle-income by 2020. Total consumption is expected to be tripled by then compared with that in 2010.”
Also at the forum, which was held by the country’s top think tank China Center for International Economic Exchanges, the central bank’s deputy governor Yi Gang said that the Chinese currency exchange rate will “basically remain stable” at a reasonable and balanced level.
“The Chinese yuan is the world’s second-strongest currency, just behind the US dollar, although it has depreciated by 2.1 percent against the dollar so far this year,” Yi said.
“The central bank is stepping away from the normal intervention in the foreign exchange market,” said Yi. “The foreign exchange policy will be more market-determined, supported by the current stable foreign exchange reserve.”
“It is impossible to see a straight rise of the yuan against the dollar in the near future.
“The exchange rate fluctuation, both upward and downward, will be more flexible,” he said.
Since the United States Federal Reserve announced the end of its quantitative easing policy, the euro has fallen 10 percent against the US dollar and the Japanese yen has weakened by 11 percent.
The Russian rouble has fallen about 45 percent against the dollar this year and suffered a dramatic slide early last week.
The stronger dollar may continue to put downward pressure on other major currencies, especially for emerging countries, economists predicted.
The combination of a gradual improvement in global demand, a relatively sluggish domestic economy and declining global commodity prices has largely widened China’s current account surplus, which has put additional upward pressure on the currency since June.
JPMorgan chief Chinese economist Zhu Haibin said he expected that the country’s current account surplus would widen to 3.1 percent of GDP this year, and rise to 3.5 percent in 2015, up from 2.1 percent in 2013.
A strong dollar should be a major challenge for Chinese yuan movements in 2015, Zhu said.
“In the first half of next year, the yuan is likely to move to above 6.2 against the dollar amid weak domestic economic performance and a strong dollar buoyed by expected Fed tightening,” he said.
Zhu also said he expected more exchange-rate volatility, and the yuan may appreciate back to 6.15 at the end of 2015.
“China is poised to become a net capital exporter for the first time…”
That right there and the facts of the situation could not be more bipolar. China in 2014 for the first time borrowed $1.5 Trillion from outside.
“China in 2014 for the first time borrowed $1.5 Trillion from outside.”
+1 Those “yella fellas” learn fast,,,it’s less expensive to lose other people’s money.
“Robert Shiller - Housing Decline”
http://goldsilver.com/video/robert-shiller-housing-decline/
“California is very bubbly and that’s where we’re seeing the sharpest declines.”
“California November Home Sales Plunge to Multiyear Lows”
http://wolfstreet.com/2014/12/18/housing-goes-nuts-san-francisco-home-sales-plunge-20-prices-soar-27/
* It’s important to note that price slashing has resumed across the state in earnest
“Housing Permits, Starts Tank – SoCal November Home Sales Plunge”
http://investmentresearchdynamics.com/housing-permits-starts-tank-socal-november-home-sales-plunge/
From the article; ‘Robert Shiller: “Historically, houses have not done well as investments. They haven’t really gone up much in value in the last 100 years. And on top of that, they’re a nuisance,’ he said. ‘You have to take care of them.”’
Of course houses depreciate Mr. Shiller. They always have.
Welcome to 2007. Happy New Year!
Prescott, AZ Sale Prices Crater 18% YoY
http://www.zillow.com/prescott-az/home-values/
“Tampa Bay Home Sale Up, But Prices Plunge”
http://www.tampabay.com/news/business/realestate/florida-realtors-tampa-bay-home-sales-up-but-prices-plunge/2205474
Kirkland, WA Sellers Slash Asking Prices 16% As Housing Inventory Balloons And Demand Craters
http://www.zillow.com/kirkland-wa/home-values/
‘Police displayed a $200,000 Ferrari Thursday, seized in a crackdown on a mortgage fraud ring they say bilked lenders and taxpayers for millions of dollars. The 2013 California edition Ferrari was confiscated along with 20 homes ─ most of them in the Calgary area ─ that were fraudulently obtained through front companies and fake documents, said Staff Sgt. Martin Schiavetta of the Albert Law Enforcement Response Teams (ALERT).’
“It sums up the lifestyle they were living,” Schiavetta said of the sleek white sports car.’
‘The investigation began in October 2013 and unravelled a complex web of deceit that employed straw purchasers and fake identifications to acquire homes in Calgary, Fort McMurray and British Columbia police said. “The companies’ sole purpose was to supply supporting documents to receive mortgages in a fraudulent manner,” said Schiavetta.’
“They were enabling them to mislead financial institutions and ultimately, many of these mortgages were insured by the Canada Mortgage and Housing Corporation,” he said.’
‘They allegedly directed lawyers, mortgage brokers and realtors to help them carry out their crimes and would use inflated home values and second or third mortgages to pad their gains, says ALERT. Schiavetta said some of the schemes went back seven years and there are likely more fraudulently obtained properties in western Canada.’
‘The homes ranged in value from $300,000 to $1 million and could be subject to civil forfeiture, police said.’
“They were enabling them to mislead financial institutions …”
OMG! When is the looting off these financial institutions ever going to stop!
“… and ultimately, many of these mortgages were insured by the Canada Mortgage and Housing Corporation,’ he said.”
Oh, maybe it’s not all that bad for them after all.
“‘They allegedly directed lawyers” (who got a cut) “mortgage brokers” (who also got a cut) “and realtors” (and they got a cut too) “to help them carry out their crimes and would use inflated home values and second or third mortgages to pad their gains, says ALERT.”
Imagine that.
Did the banks do no due diligence? Even with fraud docs it ain’t hard to spot straw purchasers I’d bet.
“Did the banks do no due diligence?”
And just why would the bank want to do due diligence?
If the bank did due diligence then they may have discovered that something was wrong, and if they discovered something was wrong then they couldn’t do the deal without putting their greedy asses on the line, and if they didn’t do the deal then the borrower would simply go to the bank down the street and the bank down the street would then do the deal - and the bank down the street, the bankers down the street, would be the ones that got to do the deal and they would be the ones WHO COLLECTED THE FEES!
“Never underestimate the power of incentives.” - Charlie Munger
ABC - Always Be Closing.
This isn’t news. Not even in California. This fraud has been going on non - stop since 1996.
If you want to stop the fraud, if you want to TRULY stop the fraud, then change the incentives.
Oh Canada!
‘More than a dozen firms — including Apollo Global Management LLC, Carlyle, Warburg Pincus and Blackstone — have lost a combined $11.7 billion in 27 publicly traded oil producers since June, when crude prices reached this year’s peak before beginning their six-month slide, according to data compiled by Bloomberg. Stocks of buyout firms with exposure to energy have slumped, and bond prices suggest some closely held oil producers may struggle to pay for their debt.’
‘Apollo has $5 billion invested in energy debt and equity, including companies that are closely held. Carlyle has directed 10 percent of its $203 billion in assets into the industry. Blackstone, the second-biggest shareholder in Kosmos, has backed drilling projects off Ghana’s coast and in the Gulf of Mexico.’
‘The bonds of some closely held buyout-backed companies are falling as well. Samson Resources Co.’s $2.25 billion of bonds due in 2020 dropped to 43.5 cents on the dollar from a peak of 103.5 cents in August. KKR & Co. and its partners acquired Samson in December 2011 for $7.2 billion, the most ever paid in a leveraged buyout of an energy producer, including $4.1 billion of equity.’
‘Heavily reliant on natural gas, the Tulsa, Oklahoma-based company suffered big losses after the deal when prices for the commodity slumped.’
When will we see actual real world repercussions from these losses, like firings and collapses and bankruptcies ?
From the Reuters article:
‘In a sign of things to come, Houston-based Hercules Offshore Inc (HERO.O) recently notified the authorities of planned “mass layoffs.” In an Oct. 30 letter, a copy of which has been obtained by Reuters, the company said it would be permanently laying off 324 workers in its Gulf of Mexico operations due to the anticipated closure of four rigs. According to company filings, it has 2,200 employees.’
‘The number of well permits fell almost 40 percent nationwide in November, according to industry data firm Drilling Info Inc., which means fewer jobs and less related business.’
‘Bud Weinstein, an energy economist at Southern Methodist University in Dallas, said the downturn in production will affect related industries such as transportation, cement, metal parts and food suppliers. For example, it takes up to 2,000 truck trips to build one new well, Weinstein said.’
‘An informal tally by Reuters of announced plans for U.S. drilling rig operations shows at least seven firms plan to cut the number of rigs they operate now by a total of more than 50 in 2015, with each rig estimated to employ 50-60 workers.’
‘Another concern is dwindling sources of funding that would help companies ride out the downturn. Prices of some of the junk-rated bonds that helped energy companies finance their expansion during boom years have been tumbling and banks in oil-producing regions are expected to curb lending to the energy sector.’
You’ve seen this before Ben….I can’t recall, but as you remember did the texas & oklahoma oil bust have systemic effects to other states that were not reliant on oil ??
Yeah, like Arizona, where the S&L’s crashed and took down RE with them. I’m curious why we aren’t hearing more from Louisiana in all this.
I’d expect credit markets to get shook up. Many of those houses in Houston, Austin and Dallas are being financed by the same players operating everywhere else. It’s going to be foreclosure time.
are being financed by the same players operating everywhere else. It’s going to be foreclosure time ??
That may be the systemic effect right there…
“I’m curious why we aren’t hearing more from Louisiana in all this.”
They haven’t run out of beer yet.
There is still a lot of denial out there. I read an article from the Bakken in ND where a company said it had just secured two years worth of housing for workers because “the low prices won’t last.” Prices have been falling six months. The pain is already being felt. In another six months, the sob stories will be everywhere.
‘Caterpillar chief Doug Oberhelman told CNBC Monday that battered oil prices will create short-term pain for his company in 2015, but not as much as the slowdown in mining has had in recent years. “It won’t be like we’ve seen in mining or some of our big cycles in the past,” he said of energy prices. “The mining business is definitely bouncing off the bottom.” But ultimately economic growth drives everything, he continued, “[and] economic growth has been slow and that’s been the real cause of a lot of the lack of growth for many of us.”
‘Caterpillar has two small plants in Russia, but they are dependent on the local economy there, which has been really hurt, he said. “We’ve scaled back.” He said China has been slow for his industry.’
“But ultimately economic growth drives everything, he continued,”
Unfortunately this economic growth if fueled by borrowed money, which means borrowed money ultimately drives everything.
“growth has been slow and that’s been the real cause of a lot of the lack of growth for many of us…”
Wow, you’ve got to be really smart to be one of these CEO types.
As growth begets credit, contraction brings something else.
‘Saudi Arabia convinced its fellow OPEC members that it is not in the group’s interest to cut oil output however far prices may fall, the kingdom’s oil minister Ali al-Naimi said in an interview with the Middle East Economic Survey.’
“As a policy for OPEC, and I convinced OPEC of this, even Mr al-Badri (the OPEC Secretary General) is now convinced, it is not in the interest of OPEC producers to cut their production, whatever the price is,” Naimi was quoted by MEES as saying. “Whether it goes down to $20, $40, $50, $60, it is irrelevant,” he said.’
‘He said that we “may not” see oil back at $100 a barrel, formerly Saudi Arabia’s preferred level for prices, again.’
‘Coloradans, at a lull in the battle over fracking, eye news from New York’
‘None of this was lost on Coloradans, where extraction has boomed over the last five years, bringing fracking from the relatively wide-open Western Slope into Front Range communities — that is, from isolated mountainsides and grand valleys to suburban back yards and school grounds.’
‘Last year, New York was home to nearly 13,000 active wells. This year, Colorado is home to nearly 53,000 active wells. New York was a significant center of oil production in the 19th century but hasn’t been a genuine field of play for the industry for decades. Colorado now produces 1 of every 50 barrels of U.S. oil as well as large percentages of the country’s natural gas output.’
I’m guessing that the number of Colorado wells will soon shrink, thanks to the ever gracious members of the House of Saud.
I posted an editorial a week or two ago that laid this debacle at the Fed’s door. It said all this drilling on margin wouldn’t have occurred without the easy money and artificially low rates. There isn’t any question the amount of drilling would have been far less. How many times have we heard of “yield chasing”? This new money has been chasing yield in everything from condos to New Zealand dairy farms to antique cars. Oil is just getting exposed. These other areas, we’ll see when the tide goes out. You can’t print wealth. This is the poofing that has to happen.
+1…Good point Ben…
‘Nearly 12,000 multi-family homes under construction’
‘Not as many nails got hammered by new home builders in the Calgary region last month compared to November last year. As of the end of November, there were 11,884 multi-family homes under construction in the region, including 1,188 semi-detached homes, 2,111 row/townhomes and 8,585 apartments.’
‘Inside Calgary city limits, units under construction included 1,010 semi-detached homes, 1,563 row/townhomes and 8,117 apartment condos. That’s a lot of apartments, but there is anecdotal evidence the number is warranted.’
‘The absorption rate (units taken possession of by owners) for apartments in November was 100% and the available inventory was zero, zip, nadda one.’
‘Depending on the project, it can take anywhere from 18 months to three years for a condo building to be completed, so the apartments under construction should be completed at an average rate of between 200 and 250 per month over the next three years.’
‘It’s a rate Calgary can handle, given recent migration patterns, but if the clouds hanging over the price of oil get any darker, it could become a glut, with planned projects put on hold.’
“(We are) currently working on our next quarterly forecast, which will be released in the first quarter of 2015,” says Felicia Mutheardy, acting senior market analyst, Prairie & Territories Market Analysis Centre. “The forecast will take into account recent changes in the economic environment, including the lower price of oil.”
All this hand wringing over collapsed oil prices is completely unnecessary, as oil will soon pop back above $100/bbl. AlbqDan has offered his assurances.
2015, the Year of the Crater. Once 10percent plus YOY declines begin being reported in many areas come next April - June, at the latest, there will be NO urgency to buy, but huge urgency to sell. It is the psychological phenomenon known as easy math. Once a person can easily do it in their head and the answer pops up 20, 30, 40, 50 grand cheaper, it’s over.
Within two years despite all the manipulation by Obama. Putin is sticking an oil rig up his azz, as we exchange posts.
What on Gawd’s earth is your colorful post supposed to mean?
“What on Gawd’s earth is your colorful post supposed to mean?
Russian Ruble is up over 9% again today. It means that once again Putin is getting the better of Obama. Russia can produce oil cheaper than the frackers and can replace foreign goods with Russian made goods. Meanwhile, the primary driver of growth in the US over the last six years is crashing due to Obama trying to do what Reagan accomplished, taking down the U.S.S.R with lower oil prices. But back then the Saudis had 12 million barrels of capacity with only 2 million barrels of production. They could flood the market with new oil and actually raise their revenues. This fall has been done with paper barrels and thus is not sustainable.
despite all the manipulation by Obama ??
Still unnerved by your faulty Rasmusson call on Romney Adan ??
Never made that call and I have proved it many times.
You are a fool of the HIGHEST order, Albdan. If you want to talk about “paper barrels” look no further than triple digit crude prices. You are an oil shill. You are getting your ass handed to you right now.
^
Yes Dan, please remember that we can’t read your mind. Your posts should allow us to follow your line of reasoning, if there is one, even if we don’t agree with it, which I ususally don’t.
Dan, I just read your line of reasoning, and it just made things worse. Never mind what I just said.
‘As oil drilling is forecast to see a downturn in the Bakken in 2015, the mayor of Watford City concedes people want to know what will happen in one of the fastest-growing towns in the oil patch. Nothing and everything is his answer.’
‘Brent Sanford said development and land sales are not slowing because the housing and infrastructure that’s needed for permanent oil field employees has not been met. “Basically, based on projections for a need of 7,000 permanent housing units, we’re only at about 2,000. We’re so far away. We can’t let our foot off the pedal here,” he said.’
‘Sanford and Williston Mayor Howard Klug are singing from the same page of the oil boom book. Klug, who was elected this spring after serving on the council, said his city is four years behind and needs to forge ahead.’
‘He said the city has $75 million worth of shovel-ready projects, including building streets to create logical thoroughfares, water extensions and creating a fulltime fire department. “We need to spend some big dollars out here because we’re four years behind. Maybe a slowdown would let us catch up some,” Klug said.’
‘He said the city is counting on the so-called surge funding of $800 million proposed by state officials to quickly give oil communities money they need for critical projects. Drilling downturn or not, the money is still crucial, he said. “They (state officials and legislators) can’t second guess us guys out here. The facts are the facts,” he said.’
Brent Sanford said development and land sales are not slowing because the housing and infrastructure that’s needed for permanent oil field employees has not been met.
Permanent oil field employees?
There are decisions being made right now, and warning signs being ignored, which will come back to haunt people for the rest of their lives.
‘Tumbling oil prices are battering Bahrain’s Shariah-compliant bonds. The Gulf nation’s dollar-denominated sukuk that mature in 2018 have dropped 1.3 percent since the end of September, compared with an average 0.8 percent gain for more than 30 Islamic sovereign dollar bonds tracked by Bloomberg.’
‘The decline underscores how oil’s 45 percent slide since last year is hurting a country where Standard & Poor’s estimates crude accounts for 65 percent of fiscal revenue and yet has oil reserves that are less than 0.1 percent of neighboring Saudi Arabia’s. The retreat threatens to jeopardize some of the $30 billion of infrastructure projects the government is planning to sustain economic growth and becalm protests by the majority Shiite population, according to Commerzbank AG.’
“Bahrain is a bit more sensitive because they don’t have a lot in reserves as Saudi or others to keep supporting their projects,” Apostolos Bantis, a credit analyst at Commerzbank in Dubai, said by phone on Dec. 17. “They will have to cut costs and stop some of the projects they’re working on. There is a risk of political unrest.”
“Running a deficit for one year is not a big deal and manageable,” Bantis said. “But if they keep running deficits then they will be in big trouble.”
‘The political and economic effects of oil on states such as New Mexico and Texas is significant. The budgets of both states rely heavily on petroleum production revenues. Several months ago, when oil prices were solidly above $100 a barrel, staffers with the New Mexico Legislature estimated that oil revenues would provide the state with more than $200 million that could be used for state infrastructure projects such as road repair and construction. With oil hovering at $60 and below, it is estimated that this figure has shrunk to $130 to $140 million. It is calculated that for every dollar a barrel of oil drops in price, the state will lose $7 million in badly needed revenues.’
‘As the prices plunge, oil produced through fracking becomes more expensive, and additional oil-well development using this technology could be put on hold. Conoco Phillips already has announced that it will cut spending next year by approximately 20 percent. This directly affects oil fields in West Texas and southeast New Mexico. The much-discussed development of the shale reserves that lie in north-central Mexico could also be scaled back or put on hold until prices rise again.’
‘Any decrease in the momentum of the development of the oil fields in the border region could result in a slowdown in the hiring of new employees and the postponement of projects such as the construction of hotels, housing and roads. Communities such as Hobbs and Midland-Odessa, Texas, have historically been affected by the up-and-down nature of oil prices. Most recently, as oil prices have been high, investment pours into these communities as the employment base expands. During periods of low oil prices, these cities can see their populations drop and their housing markets contract. I’m sure there are plenty of people in these communities who are closely watching the price of oil in order to make new hiring and investment decisions.’
‘Home prices here may slide another 10 per cent next year, while Singapore’s exports face decidedly mixed prospects, a leading analyst has said. JP Morgan’s head of emerging Asia economic research, Mr Jahangir Aziz, said the key export market of the United States was recovering, but that another important market, Europe, was still looking very shaky.’
‘On the property front at home, Mr Aziz said in an interview with The Straits Times that significant fresh supply will weigh on the market next year. “Since 2010, there has been a coordinated massive increase in supply taking place, especially in the private housing market. This has brought down housing and rental prices, a trend that we think will continue into 2015, when the increased supply fully hits the market,” he said.’
“We’re probably looking at another 10 per cent drop through next year. The price value of assets will decline as a result, which is a negative for consumption.”
‘Mr Aziz’s pessimism is partly based on persistently weak demand for Singapore’s exports, which account for around one-third of the economy. Non-oil domestic exports to the US and the European Union fell last month, while total shipments gained a slight 1.6 per cent year on year after October’s 1.5 per cent drop, data from trade agency IE Singapore showed.’
“For our exports to really grow, US corporate spending on high-end equipment needs to really pick up, because that’s where the value-add to Singapore is. That has yet to happen despite the slow recovery there,” said Mr Aziz, in the interview this week.’
“For our exports to really grow, US corporate spending on high-end equipment needs to really pick up, because that’s where the value-add to Singapore is. That has yet to happen despite the slow recovery there,” said Mr Aziz, in the interview this week.’
That’s because there was no recovery, Mr. Aziz. And it really sucks when your best customers are suddenly broke, doesn’t it?
‘Plummeting oil prices have raised the likelihood of sizable layoffs in Kern County’s petroleum industry early next year as producers facing sharply lower revenues scale back on drilling and other labor-intensive operations.’
‘While relatively few job cuts have been reported since oil prices started their free fall in June, local industry insiders say large reductions will probably hit in January, when most producers transition to annual budgets drawn up in the most volatile pricing environment in years.’
“We’ll see substantial cuts,” veteran Taft oilman Fred Holmes said. “It’s going to affect a lot of jobs.”
‘Last month, the sector employed 11,800 people across the county, which was unchanged from October but a decline since September of 400 jobs, or about 3 percent, the department reported Friday. Some say the industry has been slow to react, and that this resistance to plan for lower revenues will make next year’s cuts all the more abrupt.’
‘Among the locals with this view is Bakersfield independent oil producer Chad Hathaway, who recently reworked his 2015 capital expenditure budget to reflect the possibility of prices below $40 per barrel, which would represent continued softening of prices.’
‘This scenario entails far less spending than he does now on new drilling and infrastructure such as oil tanks and pipelines, he said. He asserts that this kind of advance planning is a more realistic approach than some producers have been willing to adopt.’
“There’s going to be serious reductions. I can guarantee that. But some CEOs are in denial,” said Hathaway, who recalled having gone through four oil price downturns in his career.’
‘There are signs local oil producers have begun taking steps to adjust to the lower prices. Munger Oil Information Service Inc. reported Thursday the number of onshore drilling rigs active in California slipped 23 percent to 48 percent last week. Publisher Bill Bolster said the total was about 70 a few weeks ago.’
We need to have the drill rig count to be at least 2/3rds of last year just to keep production stable. The IEA was expecting US production to grow one million barrels a day to create a surplus of one million barrels in the world, it is not going to happen with these rig cutbacks. Add the instability in Libyan production, not anticipated by the IEA, and we are going to have a shortage of production next year unless prices rebound sharply.
You spew nothing but nonsense and lies. You are an oil shill. You are getting your ass handed to you. You can go back 6 months where I told you oil was going to crater and you spewed your nonsense. Now that it has cratered, you do nothing but make up lies as to why it will go back up over $100. Do you want me to start pulling your old posts where you denied oil was in a bubble? It’s about time to run you off this blog again.
Since the cost of production is north of 70 dollars and the so called glut was 1% or less of production there was no bubble despite the price drop which was just manipulated as part of an economic war against Russia.
“Since the cost of production is north of 70 dollars…”
This is a bald-faced lie, and how straw man arguments are created.
Why don’t you show us field development and production cost Dan so we can better understand how you arrive at your $70/bbl figure.
I feel sorry for those who bought in oil production at $110/barrrel.
…meh, just kidding.
‘U.S. home resales tumbled to a six-month low in November after two straight months of strong increases, underscoring the uneven nature of the housing market recovery.’
‘The National Association of Realtors said on Monday existing home sales dropped 6.1 percent to an annual rate of 4.93 million units, the lowest level since May. October’s sales pace was revised slightly down to 5.25 million units from 5.26 million units.’
It’s that time again…….
Get what you can get for your house today because it’s going to be much much less tomorrow for decades to come.
Listing prices in my nabe are declining somewhat, but that’s only because the initial list price was too high to begin with. One house nearby just dropped its price by ~$20K. Only after the $20K drops would I consider it on par with comps.
One obvious trend: the buyers in my nabe no longer care about finishes such as travertine or granite or stainless or landscaping. Oh, many of the houses have pergraniteel left over from the bubble days of quick flips. But for today’s buyers, that’s all HGTV stuff that they install for other (white) people to buy. All they want to know is: how many beds, how many flushers, how many parking spaces, is there a basement for more beds and flushers, what’s the howmuchamonth. In short: how many incomes can I fit in here so I can afford the mortgage.
Sale prices and rents are falling too.
Your point?
‘On Friday I touched on the latest decline in oil and gas rigs, as the most unprofitable ones are mothballed. The closures have been particularly acute in Canada, where some 40 oil and gas rigs have been taken out of operation recently. In fact it’s not clear if economists fully appreciate what’s about to transpire with the nation’s economy. This decline in rig count is just the beginning.’
‘Housing markets across the country have continued to rally, even as homes south of the border had undergone an unprecedented price adjustment. While many point out that the reason for avoiding a US-style housing crash has been a stronger mortgage market, that’s only part of it. The global commodity boom in which Canada successfully participated is the main reason.’
‘Now, as the commodity super-cycle has ended and energy prices collapsed, Canadian households are caught with near-record levels of leverage. Some have been pointing out that Canadian mortgage debt service ratio has continued to improve. However, that measure is misleading, as it excludes principal payments. In reality the situation is much worse.’
‘While economists will attempt to analyze the impact of energy prices on various sectors separately, when it comes to Canada, a number of economic components are quite difficult to decouple from one another. What’s clear is that this exposure to energy is going to damage the labour markets, squeezing the nation’s overextended households. And the knock-on effect won’t be limited to a severe slowdown in residential construction growth.’
‘Consider for example the expenditures on renovations - something that’s been supporting parts of manufacturing and other sectors. This is not going to end well.’
‘The markets are already sensing the contagion effect from energy on the housing market, as Canadian property REITs take a hit (chart below). If oil prices remain anywhere near the current levels for a prolonged period - something the Saudis are aiming for - Canada’s economy is in serious trouble.’
‘And credit spreads have blown out again. If the dollar resumes its rally and/or the US Federal Reserve becomes more hawkish, we are going to see further market pain across many emerging economies.’
‘Speaking of emerging markets, let’s put China’s regional debt problem into perspective. Here is the nation’s fiscal deficit with and without local government financing vehicles (LGFV). The high yield selloff in the US has recently put the credit component of the CS Risk Appetite Index into the “panic” mode.’
China is one thread away from having it’s whole financial system collapse. When that happens, that’s when Canada will really start hurting.
‘According to Bernard Lefebvre of Coldwell Banker, the lower oil prices have shifted real estate from a seller’s to a buyer’s market. “There are less buyers looking in the marketplace,” he said. “It has something to do with confidence in the marketplace.”
‘Rents have also started to fall, though Lefebvre said that could also partially be due to construction projects winding down and transient workers moving out of Cold lake.’
‘Patti Ouellette, broker and owner of Re/Max Cold Lake 2000, has also seen less people looking to buy houses compared to last year.
“I’m not sure if it’s the oil or the fact that J.D. Driver moved all their men out,” she said.
There are “many factors,” she added, including a glut of new houses built that should have sold but didn’t. The oil prices “aren’t helping right now,” she said.’
‘People are hesitant to invest in a home, she said. The oil prices dropping leads to fear that people may lose their jobs and a fear that the drop will continue., she said. This means fewer people looking at buying a home.’
‘Provincial, Federal governments also affected. The plummeting price of oil has put strain on Alberta’s finances. Since the Province relies so heavily on oil industry royalties, the current market has resulted in the loss of billions of dollars of government revenue.’
‘a glut of new houses built that should have sold but didn’t…’
‘Texas is booming, drawing people from all over the world in seek of economic opportunities. But as Texas’ economy grows, so do home values. It’s a story familiar to anyone who has spent time in Texas’ major cities. In some places, such as Austin, the home values are growing so fast that some national analysts are beginning to wonder if those values are sustainable.’
‘So what would Texas’ home values look like from space? Using new data released earlier this month from the U.S. Census Bureau, the Austin Business Journal compiled a map showing how median home value estimates in Texas from the Census’ American Community Survey 5-Year-Estimates have changed since 2010. The map, embedded below, colors Texas’ 5,000-plus Census tracts from blue to red to signify the percentage change in median home value estimates. A blue-shaded tract is one where median home value estimates have fallen. A red-shaded tract is one where median home value estimates have risen.’
‘On average across Texas, median home value estimates have risen 5 percent in the four years from 2010 through 2013. The tract with the fastest growth is Census Tract 3616.02 in Harris County, Texas, just south of downtown Houston. There, median home value estimates have grown by more than 427 percent since 2010, rising from a median of $19,100 in 20109 to $100,600 in 2013.’
Here we go again!
Whoops! Existing Home Sales Drop Well Below Forecast
http://investmentresearchdynamics.com/whoops-existing-home-sales-drop-well-below-forecast/
Texas housing market next year,’ Real Estate Center research economist Jim Gaines said. ‘It’s the big unknown.
it’s known here
Zillow’s full if it. Currently shows Bellflower CA as a hot sellers market. Projecting 2 - 3 % gain for ‘15.
Say wha….?
“Housing is a depreciating asset and a loss, always. Your losses are magnified tremendously if you finance it.”
BINGO
The correction that is just starting to play out will increase our collective financial sense immeasurably.