My Thoughts on The Housing and Oil Bubbles

David Wyss brought up these interesting points, here are my thoughts on the Subject.

The Housing Bubble
It gets on my nerves when people call it a housing bubble. Sure, the market may be softening up, and some prices may be falling, but nothing burst. Its not as if people across the country are getting the boot from their homes by banks who can barely afford to do it. As a matter of fact, in places like San Francisco and the suburbs of Los Angeles home prices are still greatly inflated and finding a decent home in a nice area for a reasonable price is still an ungodly task.

Granted, some housing markets are cooling down and new homes aren't being built at the pace they were. But when you read an article about home prices falling remember to take into account that the thousands of new home owners who bought in the sizzling housing market still haven't gotten the new home smell out of their two car garages, guest rooms, and dens. After a few years when their obnoxious neighbor threw one too many keg parties, they find better jobs, or they simply want a fresh start somewhere else the housing market will white hot again.

Ultimately, prices in most markets have bottomed out, of course there will be some areas that continue to see declines for whatever reason, a lazy police force goes soft on crime or the city decides to dig out a dump a mile away from your home, or prices were, admittedly, a little high. But things will stay relatively stable for the next several years so long as the economy keeps growing at a moderate pace.

The silver lining in all these doom and gloom reports is all those construction workers that were building new homes are now free to rebuild New Orleans, construct badly needed schools, or renovate and create infrastructure essential for an efficient and successful economy. The slowdown in new home construction also frees up resources for building new business structures like condos, office complexes and football stadiums. (Los Angeles, I'm looking at you.)

Bottom line, there wasn't a bubble, and nothing is close to bursting. Home prices will remain stable so long as the economy in general is stable.

The Oil Bubble

I never thought there was an oil bubble either. I'm sorry to say oil is undervalued. Oil certainly had and still has a myriad of other reasons for soaring so high. Oil could easily fetch up to $100 a barrel in today's markets. Consider just a few of the factors that were driving and in some cases still driving the oil prices:

Terrorism: Unfortunately for capitalists, a bulk of the world's oil is in the increasingly volatile Middle East. (Invasion of Lebanon, War in Iraq, (Warren Iraq?) the nuclear standoff with Iran, need I say more?) It doesn't take much more than an effigy of Muhammad these days to justify shutting down an oil well.

Asia: The rapidly industrializing nations of Asia who suddenly woke up and said in one loud voice "Success is my only mutha f**king option, failure's not" are sucking up oil at a rapid rate. (I'm sneering at you China.) They're building factories, cities, and cars along with power plants to keep them humming. This requires vast amounts of energy and raw materials, a large part of which comes from oil.

Oil Itself: If we're honest with ourselves, we know oil is going to run out one day. Probably in my lifetime. As supply shrinks, oil futures will skyrocket.

Though I may disagree with him on a few trivial things, he was right on the money when he was talking about oil. However, I strongly disagree with his assertions and bleaker outlook on the U.S. housing market.

"That's all I have to say about that." - Forest Gump

Graciously,
Johnny Bravo
The Investing Sensei