“Lower house prices, widely forecast for next year in the aftermath of the mortgage debacle, sound ominous. Wealth will be lost on paper for many homeowners and in reality for those who sacrifice home equity through sales or foreclosures.
But as a general theme for next year, trends in personal income and spending will be more influential in determining the investment climate than will trends in personal wealth, as represented by home equity.
The critical questions are, will consumers face a pump price of $4 a gallon or more for gasoline, and if they do, will they pay it without curtailing their other spending habits?”
—Bill Barnhart writing in the Chicago Tribune
There have been numerous predictions going the opposite way on the question of future oil prices; they base oil’s coming climb – down from the recent highs on slowing economies across the world, combined with new oil sources coming online from previously undeveloped sources (shale oil from Canada, extreme deep drilling in massive offshore finds from areas like the Gulf of Mexico and the Arctic Shelf, etc.) – here are some sources:
http://www.econbrowser.com/archives/2006/05/have_oil_prices.html
The proponents of the “Peak Oil” theory neglect to include those new oil sources becoming more available as the price of oil increases exponentially. That doesn’t mean that oil prices will drop of course, but it also tells us that it’s not a foregone conclusion, either.
Isn’t the oil from Canada coming from the oil sands and not shale oil? Canada may have shale oil reserves as well but I believe the bulk of what they are refining is from the oils sands.
The US has 4 or 5 times more oil than Saudi Arabia in shale oil reserves. Years ago people said it wouldn’t be an economicly viable source of oil until it broke the $40/barrel price (if I recall correctly). We’re well past that point.
Wealth will be lost on paper for many homeowners
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easy come easy go
I predit $4 at the pump by next summer.
But the big question is- as he says- will people simply stop driving as much? Will they trade in their SUVs for a more fuel efficient car?
I don’t know how the average American will pay for gas that high without running up some serious credit card debt- and now their house can no longer be tapped to pay that off.
I love how all of these non-economists try to analyze complex economic conditions with an air of authority. O.K., I’ll play too. I don’t think $4 gas prices would have much of an effect on anyone’s driving habits or how we organize our cities and metropolitan areas. It would just bring us more inflation, since everything we buy is transported to us, as are the raw materials that go into them. To see meaningful change I believe gas prices would need to be $6 a gallon–or perhaps even higher. That would make real estate located near public transportation soar in price. At least, that’s my dream for the post-fossil fuel era.