csiro report $8 L Petrol affect on RE

[GIDDO]

The petrol crisis, the energy crisis, the global warming crisis

It is doing my 'ead in!

If half of what is being written about petrol price rises is true I will be changing the way I invest.

CSIRO today said petrol could get to $8 litre assuming peak oil has now arrived. Within 2 years I believe they said.



I am now very loathe to consider land and residences that are beyond motor scooter distance from CBD/Employment centre.

The petrol forecasts may be wrong but why should I take the risk?

A house in an outer ring suburb with poor rail service - forget it! Lifestyle 5 acre places that are 30 mins from town - looks all a bit too risky to me.

Am I being too negative?

(I am pretty optimistic about mankind's ability to overcome the oil peak crisis, but I reckon it will take a financial disincentive (hi Petrol prices) to achieve a solution.)
I can't see our fed government subsidising people to live out in the boonies.

Are we looking at a further future transfer of value from outer ring to inner ring?

I think so. Development of Dual occs in inner suburbs here I come!
Anyone else have an opinion on this?

 

[Rixter]

Dont let it get to you mate.....Look forward to what the median house prices will be in capital cities at that time - $1,000,000.00

All looks good to me.

 

[natmarie73]

Well I only buy property on a train line or near a busway, but rising petrol prices have nothing to do with my choice. I can't afford to buy property within 10k's of the CBD yet and figure that most normal people don't like being stuck in traffic, don't like paying a fortune in parking and will take the train/bus to work instead.

 

[Angelo]

It makes you wonder how our lifestyles will change. I have no doubt that alternative energy sources will be found (yippee for the Uranium mines in South Australia), however, between the time the new energy sources are embraced and the old non-renewable energy sources become less used (whenever that may be) there will probably be a period of pain and potential high costs for energy. You would suspect that cars would be used less and the internet used more. A lot of the tasks that many people do during work hours, don’t require them to be at the office and can be done from a remote location such as the home study. People can also jump on the net and talk to folks overseas via the webcam. Business conferences can be done the same way. Filing cabinets can now be condensed down to a few Gigs and sent down the phone line so some remote location.

We may very well be heading into times of change and it will be interesting to see how this will affect the way we socially interact with each other in the future.

You would suspect that proximity to cities and transport would to be a big plus for real estate.

 

[HiredGoon]

Rixter - we're not talking about generic inflation here, but energy prices rising (vs wages, vs everything).

Why would house prices go up when everyone is spending more money on energy? It doesn't make sense.

FYI, I have been expecting oil prices to go up for a while. I rent, ride a bike to work and have invested accordingly. Energy shares have been my best performers this year.

Here is a very rough formula:

Outer suburbs = Inner suburbs - travel time & expense

If travel time and expense goes up, outer suburbs prices will simply drop to where it's worth making the trip.

 

[GIDDO]

HG that was roughly my conclusion too.
It is worth noting that at the moment outer suburbs are a bit cheaper than inner, although it is hard to compare individual properties.

I can only see this trend becoming more pronounced.

 

[Rixter]

Rixter - we're not talking about generic inflation here, but energy prices rising (vs wages, vs everything).

Why would house prices go up when everyone is spending more money on energy? It doesn't make sense.

Have house prices gone up since petrol prices were 15cent a litre?

 

[BoatBoy]

HG that was roughly my conclusion too.
It is worth noting that at the moment outer suburbs are a bit cheaper than inner, although it is hard to compare individual properties.

I can only see this trend becoming more pronounced.

Rail line property is still generally cheap in a lot of areas in comparison, it has a stigma for many(until they cant afford to drive)

And you are in Toowoomba, cant you buy close to the CBD relatively cheap?(Same goes for plenty of regionals)

New water pipeline going in as well I read http://www.abc.net.au/news/stories/2008/07/09/2298770.htm

Dave

 

[devo76]

My understanding is that they forecasted somewhere between $2 and $8 mark.
$8 dollars being worse case scenario were everthing has gone wrong and alternate fuels are not considered.It was over a ten year period too.
Remember when the earth was going to stop revolving as the price approached $1 a litre. We will adapt just as we always have.

PS I remember as a young kid. My dad use to talk about fuel prices and how things will never be the same again.He had me scared that we didnt have enough fuel to make it to school.

 

[HiredGoon]

Rixter, you have to distinguish between prices rising for monetary reasons (inflation) and other. Bananas going up over 10 years is inflation, bananas going up because of a cyclone is not due to inflation. This is why we use real (inflation adjusted) measurements.

When petrol was 15c a litre, 15c was a lot more.

For most of the last 50 years, many prices (energy, electronics, food, cars etc) have been going down in real terms. We used to spend a much higher % of our wages on food, though this trend reversed recently.

This meant that people had a lot more money left over at the end of the day, say to spend on housing. Cheaper consumer goods meant that as people expanded the money supply in a credit bubble, (hyper)inflation was confined to asset prices.

More and more oil has been flowing and we've consistently increased the amount of energy available - this has meant that there was lots of economic growth and lots more money to pay back debts with.

As credit expanded, the amount you borrowed seemed to become relatively less due to inflation and your debts seemed to shrink - and as asset prices rose, this made people feel very wealthy and so they borrowed more to spend on consumer consumption and more debt to put back into asset prices.

This is the "goldilocks" economy we had over the last few years.

However, as China is no longer exporting deflation and is in fact competing with us for energy and food, consumer price inflation is once again rising. People have less money left at the end of the day after buying food and energy, which means less money to spend on debt and housing.

Less energy means less economic growth which means less expanding money and it becomes harder to pay back the debts. Combine that with increased food & energy costs and you have a real tightening occurring.

As we pass peak oil flow, there will be less net energy and economic growth which underpins our entire debt based money system which falls apart and breaks without constant growth to create the money to pay back the debts.

Thus I predict going forward the exact opposite of the "goldilocks" economy and energy and debt expansion we experienced since the end of the second world war. Everything that worked so well then, like taking on as much debt as you can and buying anything at all - will be absolute suicide going forward.

Asset prices will fall, earnings will decrease and debt burden will "feel" a lot higher than when you first took it out.

 

[devo76]

Rixter, you have to distinguish between prices rising for monetary reasons (inflation) and other. Bananas going up over 10 years is inflation, bananas going up because of a cyclone is not due to inflation. This is why we use real (inflation adjusted) measurements.

When petrol was 15c a litre, 15c was a lot more.

For most of the last 50 years, many prices (energy, electronics, food, cars etc) have been going down in real terms. We used to spend a much higher % of our wages on food, though this trend reversed recently.

This meant that people had a lot more money left over at the end of the day, say to spend on housing. Cheaper consumer goods meant that as people expanded the money supply in a credit bubble, (hyper)inflation was confined to asset prices.

More and more oil has been flowing and we've consistently increased the amount of energy available - this has meant that there was lots of economic growth and lots more money to pay back debts with.

As credit expanded, the amount you borrowed seemed to become relatively less due to inflation and your debts seemed to shrink - and as asset prices rose, this made people feel very wealthy and so they borrowed more to spend on consumer consumption and more debt to put back into asset prices.

This is the "goldilocks" economy we had over the last few years.

However, as China is no longer exporting deflation and is in fact competing with us for energy and food, consumer price inflation is once again rising. People have less money left at the end of the day after buying food and energy, which means less money to spend on debt and housing.

Less energy means less economic growth which means less expanding money and it becomes harder to pay back the debts. Combine that with increased food & energy costs and you have a real tightening occurring.

As we pass peak oil flow, there will be less net energy and economic growth which underpins our entire debt based money system which falls apart and breaks without constant growth to create the money to pay back the debts.

Thus I predict going forward the exact opposite of the "goldilocks" economy and energy and debt expansion we experienced since the end of the second world war. Everything that worked so well then, like taking on as much debt as you can and buying anything at all - will be absolute suicide going forward.

Asset prices will fall, earnings will decrease and debt burden will "feel" a lot higher than when you first took it out.

Fair enough. Plenty to think about there

 

[boomtown]

High density. Which will support mass rapid transit.

 

[plusnq]

Rixter, you have to distinguish between prices rising for monetary reasons (inflation) and other. Bananas going up over 10 years is inflation, bananas going up because of a cyclone is not due to inflation. This is why we use real (inflation adjusted) measurements.

When petrol was 15c a litre, 15c was a lot more.

For most of the last 50 years, many prices (energy, electronics, food, cars etc) have been going down in real terms. We used to spend a much higher % of our wages on food, though this trend reversed recently.

This meant that people had a lot more money left over at the end of the day, say to spend on housing. Cheaper consumer goods meant that as people expanded the money supply in a credit bubble, (hyper)inflation was confined to asset prices.

More and more oil has been flowing and we've consistently increased the amount of energy available - this has meant that there was lots of economic growth and lots more money to pay back debts with.

As credit expanded, the amount you borrowed seemed to become relatively less due to inflation and your debts seemed to shrink - and as asset prices rose, this made people feel very wealthy and so they borrowed more to spend on consumer consumption and more debt to put back into asset prices.

This is the "goldilocks" economy we had over the last few years.

However, as China is no longer exporting deflation and is in fact competing with us for energy and food, consumer price inflation is once again rising. People have less money left at the end of the day after buying food and energy, which means less money to spend on debt and housing.

Less energy means less economic growth which means less expanding money and it becomes harder to pay back the debts. Combine that with increased food & energy costs and you have a real tightening occurring.

As we pass peak oil flow, there will be less net energy and economic growth which underpins our entire debt based money system which falls apart and breaks without constant growth to create the money to pay back the debts.

Thus I predict going forward the exact opposite of the "goldilocks" economy and energy and debt expansion we experienced since the end of the second world war. Everything that worked so well then, like taking on as much debt as you can and buying anything at all - will be absolute suicide going forward.

Asset prices will fall, earnings will decrease and debt burden will "feel" a lot higher than when you first took it out.

HG

Best post you have made I think! I don't agree with some of your conclusions wrt Australia (due to wealth of natural resources) but it would be great if you could post in this thoughtful manner more often.

Cheers

Shane

 

[HiEquity]

Rixter, you have to distinguish between prices rising for monetary reasons (inflation) and other.
....
However, as China is no longer exporting deflation and is in fact competing with us for energy and food, consumer price inflation is once again rising.
....
Less energy means less economic growth which means less expanding money and it becomes harder to pay back the debts. Combine that with increased food & energy costs and you have a real tightening occurring.

Inflation is rising but why? Most seem to associate it with, as you point out, the rising cost of energy and food. The cost of food, as topcropper so eloquently points out in other threads, is intricately caught up in the cost of energy. So really it comes down to the cost of energy this time (there are of course other possible reasons for inflation but it is accepted this time around that energy prices are the primary culprit).

So, we have higher energy costs primarily driving the cost of everything in both China and Australia and elsewhere. The prices of oil, gas, coal, uranium have all ballooned together due to an unprecedented increase in energy demand from developing countries. This IS driving inflation across the economy and will continue to do so until energy supply and demand are in balance again, which could be awhile off.

The implications for Australian property? Inflation pressure will rise and the RBA will keep trying to stall domestic demand by raising IRs in response to try and make up for the "imported" inflation. However, as we are a significant net energy exporter, the economy will still keep ticking over - the wheels won't fall off but there will be some tough times. But if you can hedge your IR exposure and your properties aren't too -ve now then inflation is your friend. It will flow through to property prices (eventually - there will be a lag - how long is the question!) because it will flow through to wages and hence owner occupiers. The wage restraint being shown at the moment won't last with record low unemployment and high inflation.

As earning power rises in response to inflation, property prices rise again as the cycle repeats itself... And if the economy starts to tank? Then IRs drop and prices rise just like before provided inflation can still be controlled. So i'm not saying we can't have significant stagflation (high inflation and -ve growth) and consequent drops in property prices, it's just a lot of ducks have to line up in Australia for that to happen. I'm not betting on that happening! Australia has more to gain than lose from high energy prices...

Particularly if you buy well located property close to services and public transport, which should do relatively better than the rest in a high inflation / energy price economy. I reckon the focus will return to property quality more than it has in recent years so I'm on the lookout!

 

[Aaron Sice]

HG - you should maybe ask where Rixter has bought before you make assumptions about his *possible* future CG.

now, petrol at $8 a litre? in what fantasy? how much would food be? considering most australian jobs are actually in the suburbs, why would CBD real estate go up? i see railside suburbs booming the most - if you can afford the fares.

petrol at $8 a litre would cause a massive worldwide depression - no rockerfeller or clinton or kennedy would stand for it - the dow would prob run to 1000 just so the nwo could recoup some costs with all their puts on airlines, car manufacturers and B&B - then a bull run back to 20000

i smell a BS flag, or at least a typical govt organisation hypothesising themselves into radical, self inflicting imploding, insanity.

 

[D.T.]

Who wants to chip in for me to import a few of http://www.teslamotors.com/

 

[GIDDO]

Hey Dave, At $109,000 US dollars these babies don't sound like too bad value.

Maybe you could sell a few! Must be making the old rustjobbies ford gm etc think pretty hard about what they could have done a bit better!

 

[Debt Junkie]

A Crude Awakening

http://www.oilcrashmovie.com/index2.html

Some of it's probably coming from this movie. It's not a bad one, a bit sensationalist, but shows just how much the availability, or lack of petrol, can impact on our lives. It was on foxtel recently.

The big failing of the movie/documentary, is that the only alternative energy source considered is uranium. ie, rarely a sustainable alternative energy.

$8 per litre of petrol is a bit extreme, but consider that you currently pay less for a litre of petrol, a limited resource, than you do for a cup of coffee - a renewable resource. Something is definitely wrong with that ...

Cheers

 

[boomtown]

Rixter - we're not talking about generic inflation here, but energy prices rising (vs wages, vs everything).

Why would house prices go up when everyone is spending more money on energy? It doesn't make sense.

FYI, I have been expecting oil prices to go up for a while. I rent, ride a bike to work and have invested accordingly. Energy shares have been my best performers this year.

Here is a very rough formula:

Outer suburbs = Inner suburbs - travel time & expense

If travel time and expense goes up, outer suburbs prices will simply drop to where it's worth making the trip.

You missed a bit. Inner suburbs will also rise.

 

[topcropper]

You missed a bit. Inner suburbs will also rise.

Possibly..?
That's as long as $8 per litre petrol didn't cause a depression.


In the event of a depression, you would get the hell out of the CBD as far away as possible.

See ya's.