Iran To Help Housing? It Could Happen...

Posted by Noah Rosenblatt on August 24, 2006 at 9.23 AM

A: Lets go outside the box today. Lets analyze what is happening in the geopolitical world and see how that might affect housing; if at all. Specifically, could the latest news out of Iran affect the price of oil, which in turn will affect inflation pressure, which in turn will affect the US economy, which in turn will affect the fed's future moves with interest rates, which in turn will affect purchasing power, which in turn will affect the buyer pool for housing?

iran.jpg

In recent headlines:

Russia Still Seeks Iran Solution

Iran Tests Short-Range Missile

Iran: U.S. Mideast Plans "toppled"

Iran To Expand Nuclear Activites

...the most recent one titled "Iran says it's willing to resume talks" seems most optimistic. Included in this article are:

The Iranian government has provided a detailed written response to a package of incentives offered by the United States and other Western nations for Tehran to roll back its nuclear program.

So what if a resolution occurs. Here is a breakdown of what might happen for both case scenarios.

IRAN AGREES TO RESOLUTION & HALTS NUCLEAR DEVELOPMENT (in order)

  • Confidence will increase as a conflict is avoided

  • The 2nd Largest Exporter of Oil (holds estimated 132,000,000 barrels of oil in reserves) continues normal production and exporting. Oil supply shortage avoided. Helps in easing the price of Oil

  • Oil as an inflation pressure will ease

  • Lower oil prices assist in preventing a serious recession and hurting the US & Global Economy's

  • Fed more likely to keep rates unchanged

  • Money does NOT get more expensive to borrow in short term

  • Purchasing Power stays unchaned or more importantly, doesn't restrict maintaining a healthy buyer pool

    • Now the other scenario:

    IRAN AVOIDES RESOLUTION & ACTION REMAINS POSSIBLE (in order)

  • Confidence will decrease as a conflict is now likely; sanctions or military.

  • The 2nd Largest Exporter of Oil (holds estimated 132,000,000 barrels of oil in reserves) disrupts the world's oil supply. Energy prices spike to above $80/barrel and no end in sight. The US & Global economy's face another energy crisis.

  • Oil as an inflation pressure will rise dramatically

  • Higher oil prices assist in causing a serious recession and hurting the US & Global economy's

  • Fed more likely to raise interest rates to combat inflation

  • Money gets more expensive to borrow in short term

  • Purchasing Power restricts combined with a slower US economy makes for smaller buyer pool

    • Interesting? Yes to say the least. So, it does pay to take a step back and have a general understanding of what is going on in the real world that we don't have ANY control over. We just have to deal with the ramifications of either scenario and being educated on what will probably happen in both cases makes us all wiser for future investments that are made. Or, for at least risk assessment in our investments.

    Comments (9)

    Why do think "helping housing" mean *higher* housing prices?!?! In a healthy economy, assets should as *low* as possible in value so that more people can have more assets (houses, cars, clothes, computers, goods, services, etc...).

    The biggest winners when real-estate prices increase are the banks which finance these mamouth transactions.... not the people.

    Posted by Mario | August 24, 2006 4:37 PM

    Mario,

    Interesting point. The main point I was trying to get out of this is that geopolitical concerns have a domino effect that trickles down to the interest rate that affects those looking to take on debt; i.e. homebuyers in this case.

    It was just a step back sorta view. I would like to think that some homeowners are considered winners if real estate prices increase over time and they build equity for themselves.

    What I meant by 'helping housing' was that if a resololution happens, that the trickle effect would assist in keeping rates where they are, with no need to increase, and this keeping the buyer pool where its at rather than shrinking due to tighter monetary policy.

    Posted by Noah | August 24, 2006 5:50 PM

    Noah,

    One thing to note, the war in Iraq and the current war with Syria and Iran are about the oil bourse, not an issue with nuclear. The nuclear threat is the excuse, not the main point of contention.

    The US and Israel are trying to provoke both Syria and Iran into engagement in order to gain a public "reason" to strike both countries.

    The idea of Iran saying "ok" and then the US saying "ok, great" is wishful thinking. There is an endgame being played out which does not involve anyone shaking hands.

    Iran has the oil; and it has stated that it will create its own oil bourse. China and Russia are also taking the steps necessary to create their own. This is problematic to the US because it removes the US dollar as the reserve currency, by defacto.

    The stakes are high. And the US will use it might to defend its empire.

    The capitulation of Iran is a non-issue.

    The housing market is in a serious downslide, as you have obviously read in the financial times, wsj, nyt, and seen on the major tv news shows. At this point interest rates are not the driving force in the steep declines across the country, despite what David Lereah says. Its pricing.

    Not only are home prices unaffordable, but at this point people will not buy. People have looked at new homes, and decided to walk away because of price, then the homebuilder says "wait, I'll lower the price $40,000" which then scares the homebuyer away.

    Home prices are overpriced by >50% nationally. Its just a question of how much the market corrects, or over-corrects.

    Posted by jmr | August 25, 2006 5:11 PM

    JMR,

    Great comment and very interesting points you make. Its hard to argue!

    While I agree that housing is in a downslide, and yes I have read as many articles as I can get my hands on, I'm not sure if a 50% correction will play out. If it does, than that will be over years and years, but I dont see a $1M house today selling for 500K in 5 years?

    I could be wrong though. Thanks again for the perspective!

    Posted by Noah | August 25, 2006 5:44 PM

    Sorry, I should have clarified my statement: yes, I believe homes are 50% overpriced, but you're right about the potential correction, in that a 50% drop would be a steep over correction - at least in NYC.

    Here is a chart of a potential scenario:

    chart

    I just don't know about the future...I trying to guess, but its tough.

    Too many what ifs. But, in terms of NYC I still believe the downturn will hinge on job losses on Wall Street. If the credit bubble collapse causing massive layoffs (100,000) things will get out of hand, like they did after '87.

    I mean, if people are still putting deposits on pre-construction condos in Brooklyn with no regard to the credit bubble problem being reported, then yes, things will take some time to play out.

    Posted by jmr | August 26, 2006 1:49 AM

    the link didn't work, cut and paste:

    http://www.oftwominds.com/blogaug06/post-bubble-symmetry.html

    Posted by jmr | August 26, 2006 3:53 AM

    That chart at http://www.oftwominds.com/blogaug06/post-bubble-symmetry.html looks scary enough, but the author merely says that there's no reason to believe that housing prices will go the same way as the internet stock bubble in 2000/2001. But is there in fact any historical precedent for NYC housing prices to go the same way as the stock market did in 2000/2001? If anyone can show me such a chart, I'd like to see it.

    Posted by brooklyn | August 27, 2006 8:47 PM

    Don't have chart for NYC handy, but in the meantime have a taste of the chart by Robert Shiller to understand the severity of the bubble:

    http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

    Posted by jmr | August 28, 2006 9:43 PM

    Stocks?Iran?Housing and bubbles?Here's what to do...
    Own 2 homes (free and clear)in a retirement area(Plenty of them around for around 100 a ft in midwest) so that when your stocks go belly up you can always fall back on your homes.Live in one and rent the other.
    Take over out Iran and quite talking about it.
    Add Mexico as the 51 state of the union.
    They are all over here anyway,may as well enjoy the oil,water and agriculture they have.
    Why did we build the worlds greatest economic empire and place in on a tiny island off the Atlantic Coast?!
    What will happen when NYC is devastated by a hurricane and under 20 ft of water?
    Talk about the housing markets blowing bubbles!

    Posted by Ray | September 6, 2006 7:54 PM

    Post a comment


    To help maintain the integrity of the conversation we ask that each user simply paste the keyword (below in red) into the confirmation field below. Sorry, but if you forget this step, your comments will not be saved!