Monday, August 6, 2007
$100/barrel this year, $150+ by 2012.
A prediction here of $100/barrel by this autumn and a steady increase to $150/barrel by 2012 are the relevant points to house prices. Basically, an interest rate of 5.75% was predicated on oil dropping back to $40-50/barrel. Sustained higher oil prices will feed through into prices and wage demands and will require significant fiscal tightening, both from central banks and the money markets. Liquidity will dry up and the cost of remaining cash soar. Asset prices (houses) must fall accordingly once buffers (when landlord and householder bank accounts run dry).