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Economists say that high gas prices triggered the housing crisis in 2007 (2012)

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Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#61

Post by abeppu »

newsclues wrote: post #6
chrisan wrote: post #4

> "The key word is, 'triggered,'" said JunJie Wu, an OSU economist and one of the authors of the paper. "This theory recognizes the role of subprime mortgages and lax lending practices as inflating the housing bubble, but high gasoline prices provided the trigger that burst the bubble." Are we in another bubble? And if so what is the theory for why? I assume subprime and lax lending wouldn't be the cause after the le…

Canada’s housing bubble didn’t pop a decade ago, and continued to inflate.

Is there a convincing explanation of why the US and Canadian markets behaved differently? Were Canadian banks smarter about what loans were issued? Not being a Canadian, most of the stories I hear about Canadian real estate are about international investment by the global rich -- is that a large enough share of market to support prices even through a recession?

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#62

Post by NhanH »

mumblemumble wrote: post #46
jessaustin wrote: post #33

Earlier quoted context omitted.

It can't be discharged through bankruptcy (thanks Joe!), but neither can we squeeze blood from stone. Debtors who don't have the funds to both eat and make their payments will not make their payments.

I assume that by Joe you mean Joe Biden? Student loans haven't been something you can discharge in bankruptcy since the 1970s. If you want to thank a US president (as opposed to, say, the legislature that actually passes these laws), you should be thanking Gerald.

You can still discharge private student loan in bankruptcy until 2005, when a new bill pass to prohibit it. Joe Biden was one of the Democrats voting for it (as a member of the legislature that passed the law). The GP was probably referring to this

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#63

Post by ejb999 »

trgn wrote: post #56
bochoh wrote: post #20

Earlier quoted context omitted.

I know this is sarcasm but for those people with big pickup trucks (I should say vanity trucks, not real work machines), you’re looking at 26 gallon tanks @ 4.20/gallon. If they’re doing that once a week (conservatively) plus a presumably large truck payment, they could more than pay for a Tesla all other things aside. I personally lease a Kona Electric which after rebates and incentives costs me ~$350 a month

+1 It's been almost two decades since the last spike, five since the oil crisis of the 70s. If you're buying 50k plus gas guzzlers, and then get squeezed when gas prices are going up, it's almost self inflicted by now. So many alternatives: electrics, small frugal cars, carpooling, telecommuting, ... Can't believe USA is still incentivizing this madness.

...so again, those stupid poor people to dumb to buy Teslas.

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#64

Post by acdha »

treis wrote: post #9
chrisan wrote: post #4

> "The key word is, 'triggered,'" said JunJie Wu, an OSU economist and one of the authors of the paper. "This theory recognizes the role of subprime mortgages and lax lending practices as inflating the housing bubble, but high gasoline prices provided the trigger that burst the bubble." Are we in another bubble? And if so what is the theory for why? I assume subprime and lax lending wouldn't be the cause after the le…

Not a bubble because for the most part people are buying homes that they can pay the mortgage on. High energy prices are also going to spike inflation which eventually means rates rise. If that happens owners with their 2.75% mortgages aren't going to be inclined to sell. Coupled with higher new construction costs the housing market probably continues to rise.

> Not a bubble because for the most part people are buying homes that they can pay the mortgage on.

I think you're right that this won't be an exact repeat of 2010 — that era was just crazy for anyone who understands financial responsibility, more like a precursor to the cryptocurrency number-goes-up salesbros now than the current market — but there are some worrying factors I'd consider before buying. I don't think most of these are national in impact but I'd expect some big regional shifts which could be quite hard to handle for some cities, especially if they haven't been doing a good job on their finances already.

1. A lot of those high prices are anchored on demand in certain areas. If younger generations are successful in getting zoning rules changed to allow density, that can add a lot of competition and there are many hopeful buyers who would prefer, say, a new apartment/condo in a city with many things to do to an older (higher maintenance) house in the suburbs. I think this one is long-term enough that most buyers will be bailed out by inflation but it could at the least prove a major upset for the people who are skimping on things like retirement in the hopes that they'll get a massive equity boom like their parents did.

2. Remote work is here to stay — not 100% but enough to cause shifts in buying habits.

3. Most American home buying is predicated on cheap fossil fuels. If that inflation spike eventually leads to higher pay, this helps on mortgages but in the meantime it puts a lot of strain on anyone who can't just soak up their commute and heating costing a whole multiple of what they previously did. Expect a bunch of SUVs on the used market if the current spike lasts for very long, just like in 2010. That cuts down the number of buyers sharply for outer suburbs.

4. Climate change isn't going away: again, not a national bubble but there are areas (e.g. South Florida) with a lot very pricey real-estate which seems unlikely to be able to maintain that value. That includes things like flood insurance, coastal erosion, etc.

5. The classic suburban model isn't really sustainable: the initial work by developers and tax rates set when maintenance is the cheapest are going to require hefty rate increases as infrastructure ages or needs to be adapted for climate change, but the more people are paying for their houses the more they're going to oppose things like property tax increases or be unable to pay them.

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#65

Post by FollowingTheDao »

bochoh wrote: post #20
ejb999 wrote: post #14

Earlier quoted context omitted.

yea, all those poor people who can't afford to fill their cars should just run out and buy Teslas instead.

I know this is sarcasm but for those people with big pickup trucks (I should say vanity trucks, not real work machines), you’re looking at 26 gallon tanks @ 4.20/gallon. If they’re doing that once a week (conservatively) plus a presumably large truck payment, they could more than pay for a Tesla all other things aside. I personally lease a Kona Electric which after rebates and incentives costs me ~$350 a month

I am homeless from a genetically induced disability and live in a 2001 Minivan that gets 25MPG. What do I do?

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#66

Post by HideousKojima »

bochoh wrote: post #20
ejb999 wrote: post #14

Earlier quoted context omitted.

yea, all those poor people who can't afford to fill their cars should just run out and buy Teslas instead.

I know this is sarcasm but for those people with big pickup trucks (I should say vanity trucks, not real work machines), you’re looking at 26 gallon tanks @ 4.20/gallon. If they’re doing that once a week (conservatively) plus a presumably large truck payment, they could more than pay for a Tesla all other things aside. I personally lease a Kona Electric which after rebates and incentives costs me ~$350 a month

I have a truck that I got for cheap (under $4k) and never used as my main commuter car back when I was still commuting, but there are some very practical differences between a truck and a Tesla that most people wouldn't want to give up. Mostly in the form of cargo capacity and towing capacity. As stuff like the cybertruck and f-150 lightning trickle down into the used truck market they'll get more affordable to the average Joe, but for now it's out of reach for a lot of people. I do agree with you though that the people out there blowing $40k+ on a vanity truck could definitely go with an electric (or a much cheaper normal pickup)

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#67

Post by causi »

simula67 wrote: post #48
alkonaut wrote: post #16

Had to read half the article before the word "gasoline" appears, indicating that the gas in the headline is vehicle fuel and not heating gas. After reading the whole thing, I'm still not 100% sure.

Why Americans refer to petrol as gas, even though it is liquid, is still a mystery to me.

Gas is short for gasoline, which is what we're putting in our cars. Petrol is short for petroleum, which is not what Europeans are putting in their cars. Remind me again which colloquial wording makes the most sense?

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#69

Post by panick21_ »

They are somewhat right, but for the wrong reasons.

If energy prices were at all responsible it is that in late 2008 when the central bank had its planning meeting, they were looking at Core Inflation. In that meeting they decided to raise rates because they thought inflation was a little high. This was because of high energy prices in their core inflation metrics.

You can actually go back and read the minutes of those meetings. As Scott Sumner writes:

> And many forget that the United States was not zero bound during the great NGDP collapse of June to December 2008; indeed, interest rates fell to near-zero levels only in mid-December. Consider the Fed meeting of 16 September 2008 two days after Lehman Brothers failed. The Federal Open Market Committee (FOMC) voted to hold rates at 2%, citing an equal risk of recession and inflation. The risk of recession is obvious; we had already been in recession for nine months. But why the perceived risk of high inflation? By the day of the meeting, five-year TIPS spreads had fallen to only 1.23%, far below the Fed’s 2% target. In fact, the real risk was excessively low inflation, not high inflation. The Fed should have cut rates dramatically. Why was the Fed decision-making so misguided? It adopted a ‘backward-looking’ policy, focusing on the relatively high inflation of the previous 12 months (mostly due to high oil prices that were already plunging by the time the Fed met). It was like trying to steer a car while looking only in the rear-view mirror. A forward-looking policy would have allowed the Fed to be far more aggressive.

There would maybe still have been a small recession and a housing bubble in some states, but the real failure was to not react to the liquidity demand and in 2009 there was a deflation. This is the real cause for the majority of what we now call Great Recession.

Re: Economists say that high gas prices triggered the housing crisis in 2007 (2012)

#70

Post by jiggyjace »

api wrote: post #13

The more EVs penetrate the market the less vulnerable we are to oil price spikes. Oil has been the rate limiting reagent of our civilization. That is ending.

I feel like EV market penetration would need to be pretty insane for a society to be less vulnerable to oil price spikes. For context the US is around 5% EV penetration currently. I don't think that number includes recreational vehicles like RVs, motor boats, motorcycles, ATVs, 4x4s, etc. (most with 0% EV penetration).

But then you have the aspect of electricity generation. Did you know that the US currently generates 4 times as much electricity from oil as most renewables only excluding nuclear (hydro, solar, wind).

Our society is steeped in oil, it's beyond cheap, and there's no indication it's ending any time soon.

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