Wednesday, November 12, 2008
Northeast Housing - Bailed Out Again
For each of the last three years I have been in Boston, rising oil prices have threatened disaster for winter heating bills.
Yet each year, homeowners were bailed out. Both the '04-'05 and '05-'06 winters were extraordinarily mild and both times oil cratered in price. Last year wasn't particularly cold either but oil managed to stay upwards of $90-$100 - providing a whiff of heating bill fear up here for the second half of the six-month winter. But sheeple need more than a *one-time* whiff to panic - or to even change consumptive behavior.
Today, crude oil is trading around $57-$58 per barrel so the winter - thus far - looks like heat bills won't be that painful. However, this summer, oil was almost triple that level. It's a good thing New Englanders are economically illiterate as they might have collectively pooped their trousers if they imputed heat bills from $148 oil of this past July.
Though many did panic, including one of my know-it-all uncles who locked in at $3.85 per gallon of heating oil. Today, retail quotes are already down to $2.35 and should drop further.
Also, while oil might have been running a bit last year, natural gas remained tame. They say that natural gas heat bills were 35% less than heating oil bills. That gap should be much narrowed this year. It might even flip back to *even*.
As I type this, my neighbor is getting a gas line run through his front yard. So, like my uncle, he too got whip-sawed. Ideally, one should have BOTH gas and oil heating capabilities built into their house.
How does this effect housing? Well, obviously heat can be a large living expense up here. New England is full of 'old coots' on fixed incomes - people who complain about every 50 cent increase in their cable bills. These people should rightfully be in Florida or the Carolinas already. High heating bills might just nudge them there - and that'll be yet another blow to this still overpriced housing market.
Yeah, 'old coots' and 'old bags' are CHEAP, but they are also stubborn. My parents who live in Worcester, MA haven't even turned their heat on yet. When people talk about inflation and how it reduces *standards of living*....they are no doubt talking about trying to sleep in my parents' igloo. (Temps have already been down to the low 30s at night.)
My real estate buddy in Naples, Florida keeps praying for a cold, high-cost-of-oil (and gas) winter in the Northeast. He'd certainly have sold more homes over the past three years if the weather and commodity price fluctuations weren't conspiring to prop up Northeastern home prices.