Oil at $100.00 a barrel? That seems to be the talk of the day. Is $100.00 a barrel a new tipping point for oil? Will the economy blow right past that benchmark and not even notice? How will these economic factors impact the housing industry? All good questions. Lets break it down.

Higher Oil Prices, Tightened Lending Standards, Runaway Foreclosures

According to Time magazine the demand for oil world wide keeps getting greater. Meanwhile the available supply and our ability to refine that dwindling supply is decreasing. I remember from my first economics class that increasing demand and decreasing supply can only lead to higher prices. Now that we all agree on the direction of oil prices, what does that mean to the US housing market? Two possibilities leap to my mind.

1. Higher oil prices convince the Federal Reserve to fear inflation more than the housing markets woes. This results in no further rate cuts.
2. Higher oil/energy prices hit the tipping point where they push the economy into recession. I can’t imagine a recession ever being good for the housing market.

On Monday CNNMoney .com reported that lending institutions are tightening their underwriting standards. This will lead to a reduction in the supply of money available to potential buyers of new homes.

On November 1st John W Schoen of MSNBC reported that foreclosures increased 30% in the 3rd. quarter of 2007. According to Mr. Schoen 446,000 homes were foreclosed on during the last 90 days. These homes now get added to the already staggering 9 month supply of homes available in the market. The new foreclosures will be added to an already over supplied inventory. Mortgage institutions eager to recoup some of their investment will be motivated to sell these homes at a discount to move them fast. This will put further downward pressure on already reduced market pricing.

Matthew Grahm of MortgageNewsDaily puts it all togather nicely in an article titled Current State of the Mortgage Industry I highly encourage you to read his post. He even includes a graph from Yale economist Robert Shiller which is an enlightening look at home values over time.

Getting back to my initial question, How will these economic factors effect the housing industry? I don’t see anything good in the short term. Increased housing supply being sold at a discount. A reduction in the qualified buyer/borrower pool. Interest rates that may not move the way the Fed wants them to because of supply and demand forces out of the Federal reserves control.(Underwriting guidelines) A weak or recessed economy. All add up to bad news for the housing industry.

What are your thoughts? Is there a silver lining that I have not yet seen?