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Higher oil prices bring a bunch of negatives to the U.S. outlook. One consequence: They put a double dip in housing back on the table.
January saw a mixed performance in home sales. Purchases of existing homes posted a surprising gain of 2.7% to 5.36 million. Sales of new homes, however, dropped a larger-than-expected 12.6% to just 284,000. Both sectors are at historically low levels, held down by high unemployment, strict mortgage standards and the uncertainty of future trends in home prices.
Even so, housing in 2011 was expected to benefit, if only mildly, from the U.S. recovery gaining traction and from government policy remaining very accommodative. Household formation would increase as job growth picked up this year. Affordability would benefit from the Federal Reserve‘s focus on keeping mortgage rates low.
Housing wasn’t anticipated to surge in 2011, but it wasn’t expected to be a huge drag on growth as it had been in the past three years.
That outlook changed, however, after oil prices spiked in response to protests in the Middle East. Suddenly, businesses and consumers are uncertain where their energy bills are headed, but the best guess is up.
Bigger fuel bills are making this winter harsher for many households. The Energy Information Administration estimates the average household in the Northeast will spend $2,431 on heating oil this winter, up 23.8% from last winter’s total. Businesses from airlines to chemical makers are also facing higher costs.
Most economists think the rise in fuel costs will deter output growth rather than boost inflation. That is because higher energy costs leave less money available to spend on other goods. Given the slack in labor markets and capacity, higher fuel costs won’t translate much into higher wages or prices that would push up core inflation.
The oil-related drag on output, however, means fewer jobs. And faster job growth was a key support for housing in 2011. Every $10 rise in oil prices, if sustained, subtracts a one-half percentage point from gross domestic product growth. Every 1% increase in GDP translates into about one million new jobs. So, if oil prices don’t reverse, the drag on GDP growth could mean 500,000 fewer new jobs created over the course of 2011.
Of course, fewer jobs mean fewer new workers going out on their own. Household formation is the main determinant of housing demand. Curb formation and you curb home sales. That is why the housing outlook looks more precarious than it did just a few weeks ago.
A quick, peaceful end to the Middle East protests could turn these worries into smoke. But with Libyan leader Moammar Gadhafi digging in and protests flaring up in other oil-producing nations, a quick, peaceful end is looking as likely as oil at $50 per barrel.
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Refinance mortgage rates going to go up for sure. Any body still thinking should just make use of the low rates. Do not wait and regret it is not that difficult to make it happen. Online is very easy check out either 123 mortgage refi or any of the major banks
When Saudi King Abdullah arrived home last week, he came bearing gifts: handouts worth $37 billion, apparently intended to placate Saudis of modest means and insulate the world’s biggest oil exporter from the wave of protest sweeping the Arab world.
But some of the biggest handouts over the past two decades have gone to his own extended family, according to unpublished American diplomatic cables dating back to 1996.
The cables, obtained by WikiLeaks and reviewed by Reuters, provide remarkable insight into how much the vast royal welfare program has cost the country — not just financially but in terms of undermining social cohesion.
Besides the huge monthly stipends that every Saudi royal receives, the cables detail various money-making schemes some royals have used to finance their lavish lifestyles over the years. Among them: siphoning off money from “off-budget” programs controlled by senior princes, sponsoring expatriate workers who then pay a small monthly fee to their royal patron and, simply, “borrowing from the banks, and not paying them back.”
As long ago as 1996, U.S. officials noted that such unrestrained behavior could fuel a backlash against the Saudi elite. In the assessment of the U.S. embassy in Riyadh in a cable from that year, “of the priority issues the country faces, getting a grip on royal family excesses is at the top.”
A 2007 cable showed that King Abdullah has made changes since taking the throne six years ago, but recent turmoil in the Middle East underlines the deep-seated resentment about economic disparities and corruption in the region.
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