Friday, May 14, 2010

Our Thirst For Oil & Drill, Drill, Drill

Despite the current large crude oil inventory and Euro skittishness lowering oil prices, over the longer term, oil prices are likely to increase. Thanks to supply (depletion of easily tapped sources and increased exploration and development costs for new sources) and demand (particularly the need to fuel growing economies) the market expects oil prices to rise in the coming years
This means more oil drilling.  WTRG Economics illustrates the relationship between oil prices and domestic US drilling activity. Despite the horrific BP drilling accident in the Gulf of Mexico, our economy and lifestyle is, and will remain for quite some time, dependant on hydrocarbons.

Thursday, May 13, 2010

Where Did All The Homeowners Go?

During the housing recession we have witnessed a decrease in home ownership rates and a corresponding, even larger, increase in homeowner vacancy rates. This isn't surprising given the rise in foreclosures.
The Research Institute for Housing America, part of the Mortgage Bankers Association, has published an interesting study looking at What Happens to Household Formation in a Recession. They conclude that homeowner vacancy rates have increased markedly over the past few years and rental vacancy rates have also drifted upwards. This naturally begs the question: Where have these households gone? Well, not into rentals as rental vacancy rates have been steadily moving upward.

 So where did all the people go? The study authors concluded that they moved in with other households and this housing consolidation has resulted in increased home "overcrowding" which is defined as more than one person in a room in a household. The data shows overcrowding increased in all demographic segments they examined.

As the unemployment rate has increased people have been forced to consolidate homes, a trend not likely to reverse until the rate shows a sustained reduction. The implications of this are that household formation isn't likely to return to more normal levels until unemployment drops. People looking for household formation to soak up the excess inventory in the market may just have to wait a while longer.