Housing Bubble, credit bubble, public planning, land use, zoning and transportation in the exurban environment. Specific criticism of smart growth, neotradtional, forms based, new urbanism and other top down planner schemes to increase urban extent and density. Ventura County, California specific examples.
Tuesday, April 15, 2008
Rising Prices? No, Falling Dollars
Five years of gas prices: 5 years of USD vs EUR: Any questions? And for your enjoyment, where the energy comes from and goes to:
Lucky for me, my ex-wife got the V-Dubs in the divorce settlement. She's the one who has to buy all the gas now... on the other hand, my new Big Wheels™ is pedal-powered! Sweet!!
Conversely, if I could sell all the gas that comes out of my posterior, after drinking pureed grass all day, I'd be rich!!
Rob, your point on CR going the echo chamber direction is an astute comment. CR is a bit of a victim of his own success; he's been correct enough that the perennial critics (Sebastian, O-Joe, among others) have effectively been silenced. That's not CR's fault, he's maintained a very open atmosphere for discussion; I'll set aside the issue of the Cult of Tanta. But CR has been right enough that anyone who is critical gets jumped on immediately.
I think CR will continue to be correct more often than not, but the risk is that they'll get stuck in the past, continuing to obsess over real estate while the story moves beyond that. Granted, their "we are all subprime now" attitude recognizes the expansion of the story, as does their recent focus on consumer spending, but I can't help but notice that they are totally missing some major developing stories, like the implosion of the student lending market.
I'll continue to frequent CR, though, as there's a great deal of good analysis there. It looks like CR may be starting to look for the bottom of the real estate market; early, to be sure, but at some point it makes sense to start shifting attitudes, while HBB, HP etc. will probably be stuck in 2007 for the next ten years.
Rob, one big problem with your conclusion is that the US dollar has also dropped relative to the Canadian dollar. But as the second graph shows, the price of gas in the two countires remains in lock-step, so it's not simply the drop in the value of the US dollar.
This can also be tested by doing a correlation plot between gasoline prices and the relative value of the US dollars to euros or $CAN.
The devaluation of the US dollar is a contributing factor, but only accounts for about 50% or so.
I think CR is a sharp fella but takes a too technical approach to what is fast becoming a social crisis. Two years ago (pre-Tanta) I objected as strongly as possible to his then projection of past NOD/NOT/REO probabilities extrapolated going forward. I was strident that people were not going to live up to their responsibilities this time and personally took a large ration for that. CR was fair, using the data he had but was not willing to entertain my points because I had no past data to present.
I stick with my "it will not possible to look for a bottom until September." By that I mean it isn't even possible to determine if a bottom can be called for any time months or years until we have the summer figures. DQs March bears that out. Don't get me wrong, Even in Sept it may not be possible to call a bottom either. Anybody calling a bottom for any time in the future using the information we have now isn't wrong, they are lying. I know that sounds harsh but these are not polite times.
Tach, It was no accident that I included the CDN$. I briefly toyed with "oz of gold"/bbl as well but that introduced even weirder externalities. I thought the pure USD$ effect was closer to 60-70% and mildly assert that as much as half the rest was anticipatory devaluation.
Notice also the accelerating divergence these last few months. I also moderately believe there is a commodity bubble/hoarding squeeze that could snap at any time.
Don't look for a bottom until September? Come on, Robbo, you need to hang out with me on any given Saturday night... I see tons of bottoms every weekend, some of them gyrating in my face!!
Rob, your view on the bottom for the housing market may be appropriate for the nation, and certainly for SoCal, but I do think it's not too early to start looking for a bottom in specific markets. We may be reaching a low in markets that never went up in the first place, but got hit nonetheless, despite being well-positioned as commodity centers. On that list I'd put places like Indianapolis, Kansas City, possibly Denver (but NOT Boise, Salt Lake, Tucson, Dallas, which are well positioned commodity-wise but which saw huge run-ups.) On the "very debatable" list would be the rust belt cities, Detroit, Cleveland, Cincinnati, etc.; while they're in terrible shape economically, it's hard to imagine their house prices going any lower than what they already are. At some point it will become profitable to buy the homes and dismantle them for parts.
PV, I see your point but I do not agree. I think the pain has metastasized and everyone is exposed.
Ventura County, home to Countrywide and Amgen still counts agriculture as its #1 industry. With high transportation prices strawberries and citrus "should" prove smart assets and local multipliers right?
It is already profitable to dismantle Buffalo, Rochester, Pittsfield, etc. housing for their copper, architectural elements and such. Look at Buffalo prices, that can happen in most of your rustbelt. I cannot see a way to defensibly call a bottom yet.
Imagine how much of the energy use could be covered with alternatives if we applied the same IRAQ resources to this problem. Solar panel farms, wind, other...
After a few months of taking care of my sick wife, I could get back to cruising entertaining and intelligent blogs again, Glad to see you are still hard at work.
Your chart on the gas prices will end up showing the true turn in car buying behavior. For all of the talk of hybrids and downsizing cars a few years back, it just wasn't showing up in sales. I think the spiked behavior of gas prices prevented people from making a decision to give up more cargo space and safety for better gas mileage. With a sustained increase in gas prices, decrease in credit lines and economic uncertainty ahead, moving "down" to a 30 mpg car from an SUV might make sense for certain segments of the light truck buying demographic.
Let's be honest. If you gas up once a week (25 gallon tank) and are paying $75 now instead of $50, is this really an economic hardship? Will this really impact your safety/mileage decision on the indifference curve?
Yeah, I've no problem with price signals changing behavior. Our 2006 Honda Civic has been a great savings every month. Then again keeping our aging 1999 Expedition has worked out as well. Getting rid of the Ford would save some every month in gas but cost in insurance and investment alternatives.
I have been trying to guess what will happen to agriculture in Ventura County. 15 years ago celery was king with an assortment of different crops like onions, lettuce, peppers and cabbage in the mix. Then small berry farms started to do well on a consistent basis and they kept doing well, growing and growing. Raspberries were added to the mix and plantings went ballistic. Specialty vegetables like herbs, baby vegetables, salad mix, chinese vegetables, etc boomed as well. Ethnic crops like cilantro grew and grew too. Another high value crop pole tomatoes moved in from the San Diego area. Rents went up as these high value crops competed for the best ground. The more traditional vegetables like celery, cabbage and lettuce were pushed into the canyons where fortunately more and more citrus growers were giving up and happy to have a regular rent payment than to mess with a struggling citrus industry. Now rents in these outlying areas have gone way up. Add to this the pressure from large landscape and tree companies moving in and starting operations with hundreds of acres at a time. From a purely anecdotal point of view it sounds to me like the rapid growth and consistent profits of the boom era are over. Growers want more and more to just get into situations where they are paid a fee to grow the crop and they don't own the crop. If they control the ground and have a staff in place and all the equipment already this makes sense since conceivably they would be able to continue as if nothing had changed. But all costs are up - labor, fuel, equipment, land rent, insurance, fertilizer, liability and theft. They grow a perishable product so it is not a commodity in the way that corn is, so they do not have the luxury of storing it and selling into a world marketplace. Thus, prices are not going up. It just feels like we have entered a new stage. Furthermore, land prices are still inflated from the housing boom.
Celery was one of a long line of "row crops" that goes back to the sugar beets of the 1930s. Onions and peppers are still strong. Walnuts are dead of disease to our everlasting detriment. There are perhaps a dozen isolated trees/groves left in all the lower county. Razzies are a very recent cash crop. The biggest cost is as you imply encroaching urbanization from salaries to crime. Avocados are under pressure from imports. This is one of the very very few places where i support protectionism. See the Walnut reference above as to why. I doubt corn or staples will ever be worthwhile but we can deliver premium products to SoCal and Japan for less than most anyplace and that is some 100 million people.
Futurism: We could very well become the AgriTech center of this century.
But it looks like the profit margin is disappearing. These specialty crops were highly profitable. Then they had their growth stage and many acres were planted. Then the business model went to 'make it up on volume'. Now growers are saying give me a set contract to produce and I will pass along the costs to the shipper. The best market windows have been eaten up by Mexico, Chile and new varieties expanding production into other regions of California. When the large shippers run into a cash crunch or reduced demand from the restaurant and hotel industry what happens? Japanese exports are only a small niche. If Japan is short a buyer here can get product from anyone to fill in. A few shippers probably already own this business through strong ties.
It looks to me like there will be some cutting back. Marginal producers will disappear.
The tree crops seem like they are just something to do for the older established land owners who own the land outright. Make a few bucks an acre but not viable as a business model if you were to think of buying the land as an investment.
I am just throwing this out since it seems like it has been too good to be true the last few years. Growers expanding and spending money, but everything looks good until it isn't. It looks like a squeeze between higher costs, possible recession led reduction of demand, cash crunch and flat prices.
The judge said to me, during court "You'll have to pay spousal support." I said, on command, "Could you spot me two grand? It seems I'm a little bit short..." :-)
w, I've been thinking for some time that commodities are likely overpriced due to speculation. That may still be true, but a major development over recent weeks has been of price controls being put into place in many countries, not least of which China. That will only increase the pressure on commodity prices, although for foods that would be confined to storable foods like rice, but there will still be knock-off effects. Huge amounts of acreage being converted to soy and rice right now, that will decrease the acreage for smaller crops, and I think price pressures will continue across the full range of agricultural products.
Of course, as you noted, the farmers who own land outright have the luxury of picking the crops they grow, while heavily leveraged producers will have to continue to worry about picking the highest priced crops, but hasn't that always been the case? Given that many of the land owners are small family farmers and that many of the leveraged players are agribusiness, I'm having a hard time weeping over the situation. Producers who bought land at the top of the land boom will be under pressure to make payments, but unlike owners of residential and commercial real estate, if they need to sell there will be buyers waiting on the other side of the table, albeit at reduced prices.
pv, good points. I have been thinking more about the producers in Ventura County since this is where I work. It is way to expensive to grow commodity crops here. But there is ~250,000 acres of citrus, avocado and specialty crops. I think the land prices are too high for citrus and avocado production and the specialty crops have become to large to support prices. Market windows for berries have been cut by Mexico, Chile and other California regions. Everyone is going for volume to sell to Wal-Mart. Don't get me wrong lots of people are making money along the way to market but the crops are getting less valuable themselves. Maybe the problem from my vantage is that I see the producer end of things not the shipper end of things. However I see a lot of volatility in shippers coming and going. Starting things then reducing acres. Or old companies just shutting down and selling everything. It seems to me that the bubble is at full expansion.
We haven't even begun to see the massive job cuts which are coming across the board in the financial sector - wouldn't be surprised to see 15% job cuts in major bleeders like Wachovia, 10% across all other banks.
Gas prices have doubled in less than 5 years, with no relief in sight.
I'm buying a new diesel, but the one I want probably won't be here until 2010 (Subaru diesel)
Related to agriculture being your county's #1 business, have you heard any problems about honeybees dying off down there?
Up here in WA where there are only a few pollinators that drive their bees all over the entire state, there has been massive bee losses over the past year--up to 80% of some hives died off over the winter.
WSU is doing emergency studies right now, and some of our state's legislators tried to get a measly $500K of emergency funding for more studies and they couldn't get it passed (idiots).
This is serious stuff if you a) rely upon agriculture for your economy, and b) if you eat food.
And the general public seems to be completely asleep on this issue (well, no surprise there, eh?).
jp, if you don't mind me jumping in...there may be some hive decline here but I see a lot of hives around in orchards and berry fields. There seems to be a lot of bees flying around them and in the crops.
Did you know the honey bee was introduced to the New World by European colonists? Obviously there are a lot of other pollinators besides bees too. New world crops like tomatoes, peppers and corn pollinate extremely well with just a little wind. I think bees were necessary for decent yields with stone fruits and pome fruits that colonists brought from Europe.
31 comments:
Lucky for me, my ex-wife got the V-Dubs in the divorce settlement. She's the one who has to buy all the gas now... on the other hand, my new Big Wheels™ is pedal-powered! Sweet!!
Conversely, if I could sell all the gas that comes out of my posterior, after drinking pureed grass all day, I'd be rich!!
Casey, you should apply for the new position about to open up in Fillmore. You would be a natural. Make sure you read the comments to the article.
http://www.venturacountystar.com/news/2008/apr/12/no-headline---nb1bottomfeeder12-ec/
Fire chief position in Fillmore, eh? Well, I am very experienced with long hoses, and I am quite the flamer! :-)
Plus, I'd get to be around sweaty men all day!! Good Lord, I'm gonna pedal my way to Fillmore right now!
The first two captions (or graphics) seem to be reversed.
Our boy might like Fillmore - lots of cowboys. Does he like his chaps back-to-front?
Rob, your point on CR going the echo chamber direction is an astute comment. CR is a bit of a victim of his own success; he's been correct enough that the perennial critics (Sebastian, O-Joe, among others) have effectively been silenced. That's not CR's fault, he's maintained a very open atmosphere for discussion; I'll set aside the issue of the Cult of Tanta. But CR has been right enough that anyone who is critical gets jumped on immediately.
I think CR will continue to be correct more often than not, but the risk is that they'll get stuck in the past, continuing to obsess over real estate while the story moves beyond that. Granted, their "we are all subprime now" attitude recognizes the expansion of the story, as does their recent focus on consumer spending, but I can't help but notice that they are totally missing some major developing stories, like the implosion of the student lending market.
I'll continue to frequent CR, though, as there's a great deal of good analysis there. It looks like CR may be starting to look for the bottom of the real estate market; early, to be sure, but at some point it makes sense to start shifting attitudes, while HBB, HP etc. will probably be stuck in 2007 for the next ten years.
DQ sales are out.
45% drop in sales y-o-y.
24% drop in median.
Dec '05 median $630K.
Mar '08 median $430k.
27 months, $200,000 loss, $250 per day. -32% and no bottom in sight.
Rob, one big problem with your conclusion is that the US dollar has also dropped relative to the Canadian dollar. But as the second graph shows, the price of gas in the two countires remains in lock-step, so it's not simply the drop in the value of the US dollar.
This can also be tested by doing a correlation plot between gasoline prices and the relative value of the US dollars to euros or $CAN.
The devaluation of the US dollar is a contributing factor, but only accounts for about 50% or so.
I think CR is a sharp fella but takes a too technical approach to what is fast becoming a social crisis. Two years ago (pre-Tanta) I objected as strongly as possible to his then projection of past NOD/NOT/REO probabilities extrapolated going forward. I was strident that people were not going to live up to their responsibilities this time and personally took a large ration for that. CR was fair, using the data he had but was not willing to entertain my points because I had no past data to present.
I stick with my "it will not possible to look for a bottom until September." By that I mean it isn't even possible to determine if a bottom can be called for any time months or years until we have the summer figures. DQs March bears that out. Don't get me wrong, Even in Sept it may not be possible to call a bottom either. Anybody calling a bottom for any time in the future using the information we have now isn't wrong, they are lying. I know that sounds harsh but these are not polite times.
Oh, and I give myself kudos for not ripping the peak oilers a new one.
Tach,
It was no accident that I included the CDN$. I briefly toyed with "oz of gold"/bbl as well but that introduced even weirder externalities. I thought the pure USD$ effect was closer to 60-70% and mildly assert that as much as half the rest was anticipatory devaluation.
Notice also the accelerating divergence these last few months. I also moderately believe there is a commodity bubble/hoarding squeeze that could snap at any time.
Don't look for a bottom until September? Come on, Robbo, you need to hang out with me on any given Saturday night... I see tons of bottoms every weekend, some of them gyrating in my face!!
More on home prices and sales.
260,000 housing units in Ventura County.
549 sales. Housing stock turnover ratio 40 years.
Casey; ewwwww.
Rob, your view on the bottom for the housing market may be appropriate for the nation, and certainly for SoCal, but I do think it's not too early to start looking for a bottom in specific markets. We may be reaching a low in markets that never went up in the first place, but got hit nonetheless, despite being well-positioned as commodity centers. On that list I'd put places like Indianapolis, Kansas City, possibly Denver (but NOT Boise, Salt Lake, Tucson, Dallas, which are well positioned commodity-wise but which saw huge run-ups.) On the "very debatable" list would be the rust belt cities, Detroit, Cleveland, Cincinnati, etc.; while they're in terrible shape economically, it's hard to imagine their house prices going any lower than what they already are. At some point it will become profitable to buy the homes and dismantle them for parts.
PV,
I see your point but I do not agree. I think the pain has metastasized and everyone is exposed.
Ventura County, home to Countrywide and Amgen still counts agriculture as its #1 industry. With high transportation prices strawberries and citrus "should" prove smart assets and local multipliers right?
It is already profitable to dismantle Buffalo, Rochester, Pittsfield, etc. housing for their copper, architectural elements and such. Look at Buffalo prices, that can happen in most of your rustbelt.
I cannot see a way to defensibly call a bottom yet.
Imagine how much of the energy use could be covered with alternatives if we applied the same IRAQ resources to this problem. Solar panel farms, wind, other...
The best places to look for a bottom are Omaha and Tulsa. No joke.
Rob Dawg,
After a few months of taking care of my sick wife, I could get back to cruising entertaining and intelligent blogs again, Glad to see you are still hard at work.
Your chart on the gas prices will end up showing the true turn in car buying behavior. For all of the talk of hybrids and downsizing cars a few years back, it just wasn't showing up in sales. I think the spiked behavior of gas prices prevented people from making a decision to give up more cargo space and safety for better gas mileage. With a sustained increase in gas prices, decrease in credit lines and economic uncertainty ahead, moving "down" to a 30 mpg car from an SUV might make sense for certain segments of the light truck buying demographic.
Let's be honest. If you gas up once a week (25 gallon tank) and are paying $75 now instead of $50, is this really an economic hardship? Will this really impact your safety/mileage decision on the indifference curve?
Keep rocking the great posts.
Hey, long time...
Good to hear things are well.
Yeah, I've no problem with price signals changing behavior. Our 2006 Honda Civic has been a great savings every month. Then again keeping our aging 1999 Expedition has worked out as well. Getting rid of the Ford would save some every month in gas but cost in insurance and investment alternatives.
I have been trying to guess what will happen to agriculture in Ventura County. 15 years ago celery was king with an assortment of different crops like onions, lettuce, peppers and cabbage in the mix. Then small berry farms started to do well on a consistent basis and they kept doing well, growing and growing. Raspberries were added to the mix and plantings went ballistic. Specialty vegetables like herbs, baby vegetables, salad mix, chinese vegetables, etc boomed as well. Ethnic crops like cilantro grew and grew too. Another high value crop pole tomatoes moved in from the San Diego area. Rents went up as these high value crops competed for the best ground. The more traditional vegetables like celery, cabbage and lettuce were pushed into the canyons where fortunately more and more citrus growers were giving up and happy to have a regular rent payment than to mess with a struggling citrus industry. Now rents in these outlying areas have gone way up. Add to this the pressure from large landscape and tree companies moving in and starting operations with hundreds of acres at a time. From a purely anecdotal point of view it sounds to me like the rapid growth and consistent profits of the boom era are over. Growers want more and more to just get into situations where they are paid a fee to grow the crop and they don't own the crop. If they control the ground and have a staff in place and all the equipment already this makes sense since conceivably they would be able to continue as if nothing had changed. But all costs are up - labor, fuel, equipment, land rent, insurance, fertilizer, liability and theft. They grow a perishable product so it is not a commodity in the way that corn is, so they do not have the luxury of storing it and selling into a world marketplace. Thus, prices are not going up. It just feels like we have entered a new stage. Furthermore, land prices are still inflated from the housing boom.
Celery was one of a long line of "row crops" that goes back to the sugar beets of the 1930s. Onions and peppers are still strong. Walnuts are dead of disease to our everlasting detriment. There are perhaps a dozen isolated trees/groves left in all the lower county. Razzies are a very recent cash crop. The biggest cost is as you imply encroaching urbanization from salaries to crime. Avocados are under pressure from imports. This is one of the very very few places where i support protectionism. See the Walnut reference above as to why. I doubt corn or staples will ever be worthwhile but we can deliver premium products to SoCal and Japan for less than most anyplace and that is some 100 million people.
Futurism: We could very well become the AgriTech center of this century.
But it looks like the profit margin is disappearing. These specialty crops were highly profitable. Then they had their growth stage and many acres were planted. Then the business model went to 'make it up on volume'. Now growers are saying give me a set contract to produce and I will pass along the costs to the shipper. The best market windows have been eaten up by Mexico, Chile and new varieties expanding production into other regions of California. When the large shippers run into a cash crunch or reduced demand from the restaurant and hotel industry what happens? Japanese exports are only a small niche. If Japan is short a buyer here can get product from anyone to fill in. A few shippers probably already own this business through strong ties.
It looks to me like there will be some cutting back. Marginal producers will disappear.
The tree crops seem like they are just something to do for the older established land owners who own the land outright. Make a few bucks an acre but not viable as a business model if you were to think of buying the land as an investment.
I am just throwing this out since it seems like it has been too good to be true the last few years. Growers expanding and spending money, but everything looks good until it isn't. It looks like a squeeze between higher costs, possible recession led reduction of demand, cash crunch and flat prices.
Celery, beets, and peppers?? Bleh... might be good for organically-prepared fresh juice™, but vegetables are passe...
Hook me up with some good-looking fruits, and I'm happy. ;-)
I don't know who you are Casey but you are funny.
@w
Ask cs for a limerick or two...
@ wagga:
The judge said to me, during court
"You'll have to pay spousal support."
I said, on command,
"Could you spot me two grand?
It seems I'm a little bit short..." :-)
Good morning world! I think I will get a wheat grass enema today.
w, I've been thinking for some time that commodities are likely overpriced due to speculation. That may still be true, but a major development over recent weeks has been of price controls being put into place in many countries, not least of which China. That will only increase the pressure on commodity prices, although for foods that would be confined to storable foods like rice, but there will still be knock-off effects. Huge amounts of acreage being converted to soy and rice right now, that will decrease the acreage for smaller crops, and I think price pressures will continue across the full range of agricultural products.
Of course, as you noted, the farmers who own land outright have the luxury of picking the crops they grow, while heavily leveraged producers will have to continue to worry about picking the highest priced crops, but hasn't that always been the case? Given that many of the land owners are small family farmers and that many of the leveraged players are agribusiness, I'm having a hard time weeping over the situation. Producers who bought land at the top of the land boom will be under pressure to make payments, but unlike owners of residential and commercial real estate, if they need to sell there will be buyers waiting on the other side of the table, albeit at reduced prices.
pv, good points. I have been thinking more about the producers in Ventura County since this is where I work. It is way to expensive to grow commodity crops here. But there is ~250,000 acres of citrus, avocado and specialty crops. I think the land prices are too high for citrus and avocado production and the specialty crops have become to large to support prices. Market windows for berries have been cut by Mexico, Chile and other California regions. Everyone is going for volume to sell to Wal-Mart. Don't get me wrong lots of people are making money along the way to market but the crops are getting less valuable themselves. Maybe the problem from my vantage is that I see the producer end of things not the shipper end of things. However I see a lot of volatility in shippers coming and going. Starting things then reducing acres. Or old companies just shutting down and selling everything.
It seems to me that the bubble is at full expansion.
Where is the bottom?
When job growth turns positive again.
We haven't even begun to see the massive job cuts which are coming across the board in the financial sector - wouldn't be surprised to see 15% job cuts in major bleeders like Wachovia, 10% across all other banks.
Gas prices have doubled in less than 5 years, with no relief in sight.
I'm buying a new diesel, but the one I want probably won't be here until 2010 (Subaru diesel)
Hey Rob,
Related to agriculture being your county's #1 business, have you heard any problems about honeybees dying off down there?
Up here in WA where there are only a few pollinators that drive their bees all over the entire state, there has been massive bee losses over the past year--up to 80% of some hives died off over the winter.
WSU is doing emergency studies right now, and some of our state's legislators tried to get a measly $500K of emergency funding for more studies and they couldn't get it passed (idiots).
This is serious stuff if you a) rely upon agriculture for your economy, and b) if you eat food.
And the general public seems to be completely asleep on this issue (well, no surprise there, eh?).
jp, if you don't mind me jumping in...there may be some hive decline here but I see a lot of hives around in orchards and berry fields. There seems to be a lot of bees flying around them and in the crops.
Did you know the honey bee was introduced to the New World by European colonists? Obviously there are a lot of other pollinators besides bees too. New world crops like tomatoes, peppers and corn pollinate extremely well with just a little wind. I think bees were necessary for decent yields with stone fruits and pome fruits that colonists brought from Europe.
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