Median home price dropped for first time in 40 years

Sales of existing homes fell in December [2007], closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades. For the year, sales of single-family homes were down by 13%, the biggest drop since a 17.7% plunge in 1982. The median price for a single-family home dropped 1.8% to $217,000. That was the first annual price decline on records going back to 1968.

The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years. The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.

- There's your inflation and deflation going on at the same time. Deflation in big-ticket items like houses and cars, and inflation in pretty much everything else that you need to use, eat or drink.

Given the deteriorating conditions, there is one way that this fall in housing prices could be arrested, or perhaps even reversed : hyper-inflation. How's that?

Record power shortage hits China

reuters.com :

China is facing its most severe power shortage ever as some plants struggle to secure increasingly costly coal and others shut down capacity rather than rack up losses by selling electricity at low rates. The rebellion by power plant managers unwilling to generate at a loss is likely to worry policymakers still haunted by the nationwide diesel supply crisis last autumn, when refiners under similar pressure quietly curbed output and forced the government to make an unplanned and unwanted rise in fuel prices.

Beijing is battling high inflation and has promised not to raise energy prices in the short-term, so few analysts expect an immediate hike in power tariffs. But the shortages may prove a tricky test of the central government's resolve and power. Brownouts have hit at least 13 provinces, and at its peak nationwide demand outstripped supply by nearly 70 gigawatts, or the equivalent of most of Britain's generating capacity. Many plants are being turned off or running at reduced rates as capped electricity tariffs combined with record coal costs demolish profits, traders and industry figures said. About 80% of China's electricity is generated by burning coal.

At its core, analysts said the problem was largely the result of Beijing's attempts to control inflation and avoid social unrest by controlling the price of some types of energy, like power, while allowing others like coal to be liberalised. Officials are caught between two policies - fixed power tariffs, and coal prices freed to float several years ago.

- Yet another lesson on the abject failure of price controls. The Chinese are doing something about it but it will be difficult. It is easy for governments to give price subsidies and to implement price controls "for the sake of the people", but it is not easy to take these back.

- Update : the Chinese have halted coal exports to try to deal with the situation - China's Transport Ministry ordered ports on Friday [25 Jan 2008] to temporarily stop loading coal for export as the country struggles to meet domestic needs amid mounting power shortages. It warned of "severe" consequences for failing to comply with the order, to stay in effect through the Lunar New Year holiday in February and the annual session of the national legislature in early March.

The construction site called Saudi Arabia

goupstate.com :

Amid a forest of cranes, towers and beams rising from the desert, more than 38,000 workers from China, India, Turkey and beyond have been toiling for two years in unforgiving conditions - often in temperatures exceeding 100 degrees - to complete one of the world's largest petrochemical plants in record time. The project is Saudi Arabia's boldest bet yet that this oil-rich kingdom can transform itself into an industrial powerhouse. The plant is part of a $500 billion investment program to build new cities, create millions of jobs and diversify the economy away from petroleum exports over the next two decades.

The kingdom's lofty economic goals would have been unthinkable without the surge in energy prices that has filled the coffers of oil producers. Oil prices have quadrupled since 2002 and reached $100 a barrel in New York this month. Persian Gulf countries earned $1.5 trillion in oil revenue from 2002 to 2006, twice as much as in the previous five-year period, according to the Institute of International Finance. Despite all the recent headlines about Middle East investors bailing out troubled American banks like Citigroup, a growing share of today's petrodollars are staying at home to finance megaprojects like Petro Rabigh, analysts say. That money is financing the biggest economic boom in a generation, helping to build not only the high-rises of Dubai, where the world's tallest tower is going up, but also telecommunications networks, roads and universities throughout the Middle East.

One of the most noticeable illustrations of the industrialization push is a plan championed by King Abdullah, the 83-year-old Saudi monarch, to build six new cities throughout the country - including the King Abdullah Economic City on the western coast, near the city of Rabigh; the Knowledge Economic City, near Medina; and the Prince Abdulaziz bin Mousaed Economic City, in the north. The intent is to create industrial centers that double as housing and commercial hubs for the country's young and growing population. The Saudi Arabian General Investment Authority, a government agency, expects these cities to add $150 billion to the country's GDP by 2020, create one million new jobs and be home to as many as five million people. According to SABB, these cities together will have four times the geographical area of Hong Kong, three times the population of Dubai, and an economic output equal to Singapore's. Other plans include building four refineries, two petrochemical plants and a modern graduate-level university with an endowment of $10 billion.

- Not only will all these efforts "diversify the economy away from petroleum exports", they will also divert petroleum supplies from export to domestic consumption. This is a major point often overlooked by analysts - that of rapidly increasing domestic consumption in the Middle East countries. There will be a definite impact on crude oil exports, and hence crude oil prices, if the Arabs actually build to completion and start to operate so many refineries, petrochemical plants and entire industrial cities.

To their credit, the Arabs are going nuclear, which will reduce some of the impact in terms of fossil energy use. But nuclear power plants will take time to ramp up and they will not likely replace fossil usage in the short period of time that these industrial cities are expected to be completed. And, of course, the feedstock for the petrochemical plants and refineries will remain crude oil and natural gas.

So, the next time someone tells you about possible reduced demand for oil due to the US economy slowing down, point them to this story.