The Muddled Oil Picture
We find it kind of interesting that the stock market continues to hit records at a time in which oil prices are moderating. Conventional wisdom tells us that the stock market rallies when the economy is getting stronger. A stronger economy causes higher demand for energy. That would cause oil and gas prices to rise. Yet, in August oil prices pushed to approximately $110 per barrel and by the middle of November, they had receded to below $95.00 per barrel. In the meantime, in the middle of November stock prices hit record levels again. Why the disconnect? Some of the drop in oil prices could be associated with the uncertainty which accompanied the government shutdown — however the stock market did not seem to be affected by the shutdown and oil prices did not rebound when the shutdown was over. There are also seasonal factors. We got through the hurricane season without any major storms which could have damaged our ability to produce oil. Finally, the progress towards the Iranian nuclear agreement also weighed in on oil prices.
On the other hand, there were some additional important announcements that are affecting the overall picture. The International Energy Agency reported that the U.S. will surpass Saudi Arabia as the top oil producer in the world by 2015. The Administration also announced in November that our oil production is at a 24-year high and our imports are at a 17-year low. The factors for this include both new oil extraction technologies such as fracking and more energy efficient cars. Long-term projections in the IEA report were not as optimistic; however, for now the energy picture is getting better. Why is this important? As the economy grows, if oil prices also increase this causes a drag on economic growth. If in 2014 oil prices stay where they are, consumers will have more money to spend in other areas –from furniture to cars to houses. In other words, if it holds the oil price picture could be very good news. Meanwhile this week we will see another jobs report. This one is sure to be interesting as a follow-up to the surprisingly strong report from the previous month.
The U.S. homeownership rate climbed from the lowest level in 18 years, signaling that the real estate rebound is drawing in more buyers. The share of Americans who own their homes was 65.3 percent in the third quarter, up from 65 percent in the previous three months, the Census Bureau reported. The prior level was the lowest since the third quarter of 1995. Rising real estate values are removing negative equity, helping homeowners avoid foreclosure, while also luring would-be purchasers into the market before prices and rates go higher. The pool of eligible buyers is expanding as U.S. employment improves and families who lost properties during the recession repair their credit and seek another chance at owning. Americans whose properties were repossessed were once “homeowners by choice and now they are renters by chance,” Richard Smith, chief executive officer of Realogy Holdings Corp. (RLGY), owner of brokerage brands Coldwell Banker and Century 21, said in a telephone interview yesterday. “They will repair their credit and be back in the market as homebuyers. We don’t grow up in the country aspiring to be renters. We aspire to be owners.” Home prices jumped 12 percent in September from a year earlier, the 19th straight annual increase, Irvine, California-based CoreLogic Inc. reported as well. Source: Bloomberg
Solar panels are soaring in popularity, almost becoming a standard for new homes in several markets, Bloomberg reports. Six of the 10 largest U.S. homebuilders say they now include solar panels in new construction, and consumer demand for them is expected to soar 56 percent nationwide this year, according to the Solar Energy Industries Association. “In the next six months, homebuilders in California and the expensive-energy states will be going solar as a standard and just incorporating it into the cost of the house like any other feature,” Jim Petersen, CEO of solar contractor PetersenDean Inc., told Bloomberg. Installing solar panels during the home-construction phase is about 20 percent cheaper than doing so after the house is built. Solar panels can cost between $10,000 to $20,000, but they can drastically reduce electricity bills. In California, the biggest solar state, as many as one in five homes built this year will have solar panels, according to some industry estimates. Source: Reuters
Though U.S. developers added 39 million square feet of new office space nationwide over the last year, the gains were muted because another 22 million square feet of office space was removed from the market, CoStar Group reports. Where did it go? Developers have either demolished or converted the removed space into other uses, such as apartments or condos, according to an analysis of CoStar’s third-quarter Office Outlook and Forecast. But more developers are second-guessing demolishing these older offices and opting to convert these spaces into residences in order to help meet growing demand for urban residential space. The trend is most evident in markets like New York City, San Francisco, Chicago, Philadelphia, Baltimore, northern New Jersey, and Washington, D.C., CoStar notes. Developers are finding that residential condos can fetch investment sales prices of up to $5,000 per square foot, much higher than what the office buildings attracted. Source: The CoStar Group