Tuesday, October 28, 2014

Why lower gas prices might not juice the economy as much as you think.

Right now you can not throw a dart without hitting an article about the "new housing" bubble. Which frankly I think is bullshit. Are prices going to go down? Yeah. Of course I think so. But if you are smart you will look past price declines and realize that if you can not afford a house at interest rates around 4% - you shouldn't be in a house period.

The reason I bring this up is because people keep screaming about a housing bubble all the while ignoring how much rents have gone up in the last year. I haven't been keeping track of rental increases as much because my renter is under contract until May. But in  the last couple of weeks I've been noticing a lot of stories that even make my mouth drop. People are getting notices of their landlords trying to increase their rents by several hundred dollars per month. Likely these are the same demo that got tossed out of their houses for similar rent increases when they owned.

San Francisco YOY increase - 9.4%
Oakland YOY increase 19.1%.
San Jose YOY increase 9%
Bay Area as a whole YOY increase - 10.3%.

I don't know what is happening in the rental market in the rest of the country - but in California - those types of increases are going to eat up any savings they are gaining with gas prices being lower. And then some.

I'm not really sure how this is going to pan out. Since the recession started, they have build about half of the units they normally night. Population increases will outstrip that supply.

Normally these types of issues are easily resolvable. If they are able to gain financing and can find land to build on. In the Silicon Valley they have already started getting creative by putting a lot of new developments on the tiny slivers of land next to the railroad tracks as I wrote about here in June.


  1. What if the people who own oil know that this whole hybrid thing is actually legit and it's now a race to the bottom for anyone whose been sitting on unused oil fields. As someone who drives for a living, I would welcome the march back down to $1 a gallon, but can't even imagine what type of reaction the market would have to it.


  2. It's an interesting question. I don't really track hybrid sales. So, I had to go over and find out. I mean, that might happen one day.....I'm just guessing
    that day is not right now.

    Hybrid's have only sold roughly 3 or 4 million units total. From Wiki.Regular cars sales are from 6 million ( in 2009) to 20 million a year depending on how good or bad the economy is. IMO hybrids are a still an insignificant portion of the market. I think it's more likely oil guys are just stuck.

    To stop a well from producing they have to cap the well. (From what I understand.) And you probably don't do that unless you are pretty sure you aren't going to need to crack it for a really long time. You absolutely do not drill any new wells, but the ones you have you let flow.
    I guess.

    I generally think that if gas goes to a buck - people will just start driving hummers again. It's human nature. People make a lot of lip service about loving the earth, but cars are status symbols. Even hybrids.

    Eventually that status symbol will fade and they will like something new. Cheap gas will probably cave hybrid sales. But people are unpredictable. This is just my guess.