Thursday, Jun 26, 2008
The country will be turned inside out by higher energy prices.
daily reckoning: Boneheaded Miscalculations
Life on the edges of suburbia is beginning to feel untenable," says the Times. Like it or not, Americans are being forced to park their cars. This spring, they cut back on their driving at a sharper pace than anytime since 1942. But it's hard to stop driving when you live far from work and far from shops. The confidence level of suburbanites falls with their house prices. We have no proof, but our guess is that no houses are falling more than those built most recently, most far out. That's where homeowner equity is likely to be lowest…and where the increased price of commuting hits hardest. That is where house prices ought to be most vulnerable. Potential buyers will simply add up the costs of commuting - in time and money - and subtract it from what they are willing to pay cont.
6 Comments
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1. malct said...
It is a joke. You only can use if you live inside a city and if you do live inside a city you don't need it.
What is it?
http://2cents.dailyreckoning.com/viewtopic.php?t=31166
2. jonb said...
Following that argument to its logical conclusion, city centre apartments should be doing well, or at least lest badly than property in general - as you are within walking distance of everything you need.
That however doesn't appear to be the case. City centre apartments are falling faster than everything else.
3. malct said...
jonb - agreed, that's one reason I posted the article.
I have some views myself, but for once I'm more interested in what other people have to say.
The article goes on about oil politics as well, but that can be a touchy subject at the moment.
4. drewster said...
@johnb - City centre apartments would have done well in the long term, if it weren't for all the other issues:
1) The new-builds are often badly built. I've lived in one and it was falling apart by the time I left.
2) New flats are smaller (in square footage) than old terraced houses. Developers market them on the number of bedrooms, but the bedrooms are tiny! The kitchens and living rooms are always combined into one room, supposedly modern-style but actually just using less space.
3) New "city centre" apartments often weren't in the centre, but in some dodgy fringe that only an estate agent could describe as "up-and-coming". Some were built next to existing council houses - not traditionally the most desirable area!
4) The architecture is bad. A lot of new flats are built in Le Corbusier style towers surrounded by vast parking lagoons and tatty grass verges. These are different to the traditionally popular street-front apartments found in older towns.
5) The new-build flats were ridiculously overpriced and sold to gullible investors. Their prices are falling compared to what people paid for them originally, but the good ones are still more expensive than properties further out in the suburbs.
6) The credit crunch is indiscriminate. All properties are falling, regardless of how good they are.
Petrol prices in Britain are only just starting to bite - most people appear to be able to afford £1.30 a litre. Until we hit £2+ (probably by 2010-11), people won't curtail their driving.
5. cyril said...
drewster - there are knock-on effects of high petrol prices - for example to reduce the resale value of gas-guzzling cars so it is a double whammy.
It's not uncommon for a car to lose 20% of its value per year so your average X7 stormtrooperwagen is going to cost about £200/week in depreciation alone.
6. mrmickey said...
I agree Drewster we won't see people really cutting back their driving until we hit £2 a litre. All you have to do is stand by any road and watch the cars go by most of them still only have one occupant and as most cars can carry five people there's still a lot of waste going on out there. Also the trains don't seem any more crowded than usual.