San Diego Housing Bubble News and Analysis

If you want to talk large scale demographic or other changes that will affect real estate here's something else to think about. After just watching tonight "The End of Suburbia - Oil Depletion and the Collapse of the American Dream" I would say a more potent issue to consider would be rapid decline in cheaply produced global oil production. Assuming half of what all the people in that movie said in 5 - 10 years that will hit the price of alot of real estate... more than something like the Baby Boomers.

Just on another note relative to what you wrote, as my father told me recently when discussing the issue water and more specifically the future lack of access to it.."No human civilization has ever survived long term living in the desert". So you may want to suggest to your in-laws that moving to the desert might not be a truly peaceful and dream like way to end their final years here.

Sorry. Just a bit depressed after wathcing the DVD about the reality that most of us (including me) really don't want to face about about our future based on a cheap petroleum lifestyle. For real estate predictors it is a good watch as there are some very interesting prognostications (?sp) about how Americans will live their lives in as soon as 7-10 years (major downsizing of EVERYTHING, reversal of globalization, small communities that have to come together to grow their own food and generate their own energy) and what effect this will all have on real estate.

What a way to spend my Sat nite )-: One thing that did make me smile was the quote "It will be the end of the 3,000 mile Ceaser Salad"...

Sorry. Next post will be more uplifting I hope....

Hmmm... I'll have to check out that film at some point but I'm wondering if they had mentioned the oil shale reserves recoverable in the Green River formation in Colorado. 2.6 trillion barrels worth...

http://en.wikipedia.org/wiki/Oil_shale
http://www.dailyreckoning.com/rpt/OilSha...

Did they happen to mention the reserves of oil sands recoverable in Alberta Canada (currently larger than the reserves of Saudi Arabia)?

http://www.energy.gov.ab.ca/89.asp
http://www.usatoday.com/money/industries...

Combine that info with a heavy amount of research capital easily provided by oil companies and the Govt's plus a North American free trade agreement and you have the final tipping of power in OPEC and world economics. Not so doom and gloom and since the US Govt. has owned the Oil shale land for 100 years it's a pretty sure thing they've been planning to pull this card at some point.

A lot of boomers might aspire to "retire in place" in the classic sense, but only a fraction of them are going to be able to realize that aspiration. It takes a lot of money to continue to live a $75,000+ annual income lifestyle, and the equity that's tied up in their housing doesn't count.

I think a lot of boomers will just continue to work til they drop, either because they have to or because they choose to in lieu of changing their location and lifestyle.

There are a lot of areas in the U.S. that got emptied out as a result of migration to employment. Housing is cheap and the pace of life and consumption is a lot slower.

I would imagine some of those areas will be attractive to retirees who have less than the multi-million dollar net worth it takes to retire in the coastal economies. I can imagine some of these small farming towns coming back to life as the result of boomers seeking a lower cost of living in what remains a nation governed by the rule of law. Retirees coming back to spend money in those local economies will revitalize some of them.

Bonus - they won't have a learn a new language or worry about a revolution that would kick them out.

Both oil shales and oil sands offer a tremendous source of oil IF we have the energy to extract the oil - getting oil from either of these sources currently requires tremendous amounts of energy (and clean water) - given our current technology, getting oil from either of these sources is probably a NET LOSS

One of the things happening in Canada is that natural gas supplies are being diverted to the oil sands regions - places that are dependent on this natural gas (like the northeastern US) will suffer rising prices as the competition for natural gas continues

I haven't studied the economics but I question whether it makes sense to use clean-burning, easily transportable natural gas to refine oil from oil sands

The last article I read about the oil shales talked about the challenges created by the porous rock in which this oil resides - the technique being discussed was to freeze the ground to create a large frozen box of dirt in the earth and then superheat the dirt inside this box to cause the oil to flow out of the shale so it could be collected - lots of energy required for both the freezing and heating processes and the amount of oil recovered was trivial

capeman - are you aware of any current technology for extracting the oil in oil sands or oil shales that isn't a net loss?

Hello Bugs,
I have appreciated you commentaries. I wonder how you feel about my idea of retiring in SoCal debt free, including primary residence, with a couple of middle class neighborhood rentals also free and clear, plus some small change from Social Security and a rainy day fund. I know on a dollars wise sense it works of course. I could raise my family frugally on that, using current numbers, but what about setting it as a 15-20 year plan. Do you see any potential pitfalls? I have a good jump on it by the way. Getting there is probably not the issue.
Thanks

I am the idiot savant. I can barely function in anything outside of what I do for a living. Financial planning isn't what I do for a living so I'll defer to those who understand that better.

I will note that any plan that includes "living frugally" doesn't exactly fit in with the ideal that is constantly being pushed in the TV commercials for investment companies. Your plan seems a lot more realistic to me than that ideal, and I think you are probably a lot closer to pulling off your plan than 90% of the boomers. It doesn't seem like of lot of them see any farther than their next car payment.

If you were willing to relocate and take the equity from your domicile with you I'm sure you could live the high life in any of a number of towns throughout Middle America - but that does involve other compromises that some people would not voluntarily choose to make.

As for me, I'm fortunate that I enjoy what I do for a living, because my retirement plan involves cutting back on work, not quitting. I suppose some people would call that a compromise, too.

Bugs,
Every healthy male I know who has retired so far continues to work part time because it keeps him sane,need for funds or not.I just hope work is available for those that need it when the time comes. I could be happy tending to a garden, having a pet or two and visiting with friends regularly. I did consider the fact that having three homes free and clear in San Diego might give a guy options. I probably will want to stay here. Frugality is a funny thing...our home is paid for,cars are paid for and because we are not flashy at all people just rain things down on us, especially clothes and neccesities for the kids because they think we are poor. Second hand furniture ...It's easier to give it to me than take it to the dump!
I build things for people sometimes(60ish year old boomers). They buy $500 faucets with their construction take out loan money while I am telling them I put average brands in my house because it is all I can afford!We are all going to be dead before my average faucet has to be replaced.That is a $400 difference that doesn't have to be earned or if earned is available to invest just over one faucet.
TV? Whats TV?
Best wishes...

Here's an interesting link on that...

http://money.cnn.com/magazines/business2...

Here is the summary (below), although there is also a bit on there about oil sand mining and it's cost being ~$25 a barrel. $30 a barrel from shale extraction is still reasonably profitable at this point but will become more so as current supplies are heavily controlled (by coalition forces and anti and pro-western countries.) As our needs increase due to all of the SUVs now out there and Eastern countries industrialize to maximal potential (using loads of oil in the process), you will likely see controlled prices rise even more due to limited daily production. At that point $30 a barrel cost is negligible and the rest of the world is subject to our production of the badly needed surplus. That would be a very good way to reverse a problematic and nagging trade deficit with a large eastern industrializing country.

If heating is the major energy contribution involved in the process, nuclear means could handle the supply of energy needed very easily and could be subsidized by the govt. Just a theory but a politically reasonable one seeing that everyone in the world (mostly us!) is currently positioning for control of the world oil supply and we carry the possible trump card for the needed extra supply.

OIL SHALE

Legendary American geophysicist M. King Hubbert famously predicted in 1956 that U.S. oil production would peak in the early 1970s. Though ridiculed at the time, his prediction--today known as "Hubbert's peak"--came true, and domestic production has declined ever since. In the coming decade, however, American oil production could be on the upswing again. It isn't likely to be the controversial proposed drilling in the Arctic National Wildlife Refuge that does the trick, though that would boost production. The bigger kick could come from oil hidden in sedimentary rock known as oil shale found in vast quantities throughout western Colorado and parts of Utah and Wyoming. Government scientists have estimated that the United States is sitting on 2.6 trillion barrels of reserves in oil shale form, spread across an area of nearly 16,000 square miles of federal and privately owned land. The oil-rich terrain is the single largest untapped petroleum reserve in the world.

Like oil sands, oil shale is witheringly expensive to exploit; such efforts in the late 1970s famously collapsed when oil prices dropped from the highs of the Iran hostage era. The technology for extracting oil from shale has improved drastically since those days; industry leader Shell has come closest to perfecting a commercial process but still remains several years away. Shell's process involves drilling a series of holes, each as deep as 600 feet, which are then filled with heavy-duty electric heaters that warm the rock to 700 degrees Fahrenheit. The heating process releases a combination of oil and gas that can then be pumped out of the well. "We're confident that high-quality crude can be produced from shale for roughly $30 per barrel," says Shell spokeswoman Jill Davis.

Shell, Chevron, and six other firms have recently descended on the western slope of the Rocky Mountains, submitting applications to the Bureau of Land Management, which manages most of the oil shale reserves, to drill test wells. The U.S. Energy Policy Act, passed in August, requires that the agency issue licenses for research and development by February. Prices will have to stay high for oil shale to pay off, but the upside could be enormous.

THE PLAY Extract hydrocarbons trapped in ancient rock

PLAYERS Chevron, Exxon Mobil, Kennecott Exploration, Shell

POTENTIAL PAYOFF 2.6 trillion barrels or more of recoverable reserves

1 BORE IN In a 30- by 20-foot field, a series of 600-foot-deep holes are drilled to reach oil shale--sedimentary rock containing hydrocarbons. The holes are spaced 5 feet apart around the perimeter and within the field.

2 FIRE UP Specialized heating tubes placed in the holes warm the rock to 700 degrees Fahrenheit, a process that can take anywhere from eight months to four years.

3 SPLIT OFF At the molecular level, the heat separates carbon--oil and gas--from the rock.

4 LIFT OUT The oil and gas are then sucked from the ground through holes equipped with pumps at the top.

Sources: Bureau of Land Management; Shell

Rustico, God help the economy if everyone lived like you. Can you imagine what would happen if consumers cut back 25% of their spending?

It sounds like you're reached a certain balance in your life.

Perry I have a huge advantage. I was born into poverty and raised as a have not. I am not competing with my parents or anyone else. Another advantage, I married a smart woman...I let her pick out her own wedding ring.DUMB right? She picked out a $28 ring, thats twenty eight dollars!She loves it!Mine was $109. I had better quit bragging!
Best wishes

Rustico you are not alone. Our household income is well over $200k a year. We live in a condo we paid cash for in 2000 for $120k, drive a 2001 Toyota, and have no debt. What do we do with our money? We take the summers off and stay in our trailer (white trash villa with wheels) at the beach in the South of France. The rest we save, save, save and we are retiring in two years at the ripe old age of 53...we all make choices in life, unfortunately many are swayed by all the hype that you should buy "the most house you can afford" and other pearls of wisdom put out by the same people that profit from them.

Rustico, Slackerboy, et al,

My parents and some other family members immigrated to US in the 50s. From them I learned exactly what you are saying. My aunt and uncle lived in LA area and worked as gardener and house cleaner. They bought at swap meets and resold at garage sales. They saved every penny they had. They paid cash for their homes. They saved hundreds of thousands of dollars by living simply. Others thought they were poor, but they could care less.

Luchabee and others - I have several babyboomer friends in SD that mentioned this past year they would be retiring. Guess what's funding the retirement? You got it, primarily their SD house. I very carefully tried to convey that betting their retirement future on the selling of a primary residence in a declining market, might not be a safe bet. Deaf ears.

My guess is that there are more boomers in this boat who might not be retiring as early as they thought, say back in 2004 at the peak.

Another thing about the boomer generation is their retail purchasing power, which when it declines will have a corresponding effect on the general economy.

We tend to consume more when we enter that nesting phase of our lives and raise our kids. After the kids leave, those expenses beyond necessities decline. Having kids in the house often triggers consumption patterns for the adults they wouldn't otherwise have, and that goes beyond stuff that's related to raising the kid. Having a teenager around can prompt a parent to buy the bigger TV or to stay current with clothing fashions, or to buy the big ride, or do other things they wouldn't do if it was just the parents in the house. Kids actually add to the peer pressure the parents feel to compete.

A person only needs so many vacuums, toasters, furniture, linens, etc.. Once they have what they want they usually have no problem cutting back when the money slows down.

In generations past, the age ranges where this usually happened was somewhere around 45-50, after the kids were out of the house and doing their own thing. This generation is different because we have allowed our kids to "enjoy" that extended childhood that carries through to their late-20s. This means those parents don't really slow down till their late-50s.

If the Boomer generation is just now starting to turn 60, that means that the big bubble in reduced retail consumerism - if it comes at all - would still lie ahead for most people. A couple who waited until their late-30s to have kids wouldn't get to slowing down until they hit their mid-60s.

Once the boomer generation is out of the consumerism phase the demographics would seem to dictate that the retail trends will go into a long term decline, with smaller spikes in the future. Whether that will be offset by foreign immigration and/or the elevation of the currently-poor into middle income ranges remains to be seen.

I kinda doubt that the purchasing power of the boomers will be completely replaced after they're gone. I can also envision that we may be entering a period of lowered expectations, the effect of which may manifest itself in everything from the size of houses that are built to the designs of cars. We may possibly never see subdividions of 6,000 SqFt houses or 7,000 lb. urban assault vehicles again after the boomers leave the scene.

Assuming the housing *and* stock markets correct, lots of folks are going to be facing rocky times ahead.

Congratulations slacker. Your life style and plans sound really great! My situation is a little different in severals way. I have 3 kids under 5 years old and I am 44.I have fairly nice house 2280 sq feet on 20 acres that I built with the ideas of living debt free and of capitalizing on my efforts at resale time or when we put it out as rental. I don't mind enjoying that luxury until then. My two greatest puposes are to be able to stay close to my kids and to increase our financial freedom. I am not a frugality purist but I have those two reasons to keep me on track.

Bugs you are a really smart man..I think you are a man? You said you are only good at what you do for a living. If you don't do speculative cultural analysis (I made that up) for a living you are a genius in at least two fields. I think you are an appraiser of pretty complex projects? Maybe that is someone else on the blog? Your line of thinking on the topic of baby boomers reminds me of something that I think might be an emerging trend. Extended families a la Mexico.That would be a cause and an effect of the shrinking economy scenario.I just can't see people not having to pool resources in the future. I enjoy the idea myself,at least in theory.There is a family that is living like that out near where I live. Yes they are white. Three generations with multiple siblings in all three.I think the oldest generation may have mostly passed but there is at least one couple left.

Idiot savant. Barely functioning. Counting on fingers and toes. Eat with hands. Drink beer. Married monogamous white male of 50; socially inept and barely tolerated in public. So I stay in. I do surf, though - but only because nobody in the lineup seems to mind.
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The demographic angle isn't mine and I couldn't take credit for it. I read it in a book a while back, the title of which escapes me. The economist was talking about wealth transfer to the Boomers from the Greatest Generation (although the book precedes when that phrase was coined). He said that the consumption patterns and refusal to save of the Boomers was heavily influenced by their knowledge that their parents would pass on inheritable estates to them before the boomers would retire. Boomers have basically been spending their inheritances.

He also said the consumption patterns would wind down rather quickly as of 2010, which would have corresponding effects on the general economy. He noted that the GenX kids coming up had different definitions of success, and that lifestyle and leisure time would be more important to them than corporate titles and suits and commuting. That's one reason for the extended childhood that's currently in vogue; it isn't all the result of Boomers spoiling their children.

I didn't agree with everything he was saying at the time, but I did see enough parallels close to home to pay attention to him.
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The generational house for the extended family isn't new, not even in the U.S.. Neither are communal living arrangements of various sorts. Remember the boarding houses commonly depicted in the westerns? Bunkhouse on the ranch? Single room apartments with shared bathrooms down at the end of the hall and a dining room downstairs? I appraised a building like that in downtown San Diego about 10 years ago; it was recently converted to condos but that required totally gutting the interior.

All told, I think the nuclear family may yet turn out to be the anomoly.

For a while back in the mid-90s I was thinking about buying a nice triplex or 4-plex to run my own version of the extended family compound; minus, of course, the weapons cache and bunkers that are favored by the religious nutcases. The idea was to start a family trust and pass it from generation to generation. My oldest was a teeneager at the time. I came to realize that if they have the opportunity, most adults prefer to be off on their own and not participate in a patriarchal hierarchy. The spouses of the kids suffer a bit in many of those situations, and privacy is tough. Plus, my wife hated the idea. That ended that.

I think people will gravitate towards small and medium-sized condos and townhomes before they choose to double up in a large house. I think it's practially a crime that the average tract house ever got any bigger than about 2,000 SqFt. With that said, I also think its possible that doubling up may become a lot more common because of the economics involved.

Now which fork do I use for the salad? I keep forgetting.