Soaring Electricity Prices See Sensational Home Prices

Todd Moses
June 17, 2024

Electricity prices in the U.S. are at an all-time high, affecting real estate prices.

Inputs that matter: The increasing electric costs are at a time when natural gas prices are relatively low.

  • While natural gas prices affect electricity, the increase in power right now comes from skyrocketing mineral costs and increased demand.
  • Uranium prices, highly correlated with electricity prices, are moving upward.
  • Copper, a critical component of electrical components used in both power consumption and generation, is near a record high.

The opportunity: When electric and other utility costs rise, the demand per square foot of housing decreases.

  • However, the cost per square foot goes up for smaller spaces.
  • This leads to a trend of building smaller homes, further increasing the cost per square foot.
  • Meanwhile, larger spaces increase in value at a slower rate.

Zoom in: China was the world's most oversized extractor of domestic materials in 2023.

  • The country extracted 34.2 billion tonnes of materials, including biomass, fossil fuels, metal ores, and non-metallic minerals.
  • In 2023, India overtook the United States for the first time to become the second-largest extractor of these materials.
  • Despite being the authority in mining, China's housing slump deepened in May and triggered new calls for the government to pump cash and credit into the economy.

Between the lines: China's new home prices fell at the fastest pace in more than 9 1/2 years in May, official data showed on Monday. The property sector is struggling to find a bottom despite government efforts to rein in oversupply and support debt-laden developers.

  • Hong Kong has retained its dubious distinction as the world's most unaffordable property market for the 14th year, as the average home costs more than the average family earns in over a decade.
  • Meanwhile, Five U.S. cities also made the top 10 of the most unaffordable cities: San Jose, CA, came in fourth, followed by Los Angeles, Honolulu, San Francisco, and San Diego.

Follow the money: Home prices move up when property taxes remain low.

  • Increases in property taxes reduce the value of property in those jurisdictions.
  • "Perhaps ironically, the U.S. dollar's strength is, in part, due to its near-unchallenged safe-haven status," said Steve Hanke, a professor of applied economics at Johns Hopkins University.
  • Rising authoritarianism, threats to individual and property rights, and geopolitical tensions have meant that even if U.S. assets are less attractive than before, other options are worse.

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Read More

  1. https://fred.stlouisfed.org/series/APU000072610
  2. https://fred.stlouisfed.org/series/PURANUSDM
  3. https://fred.stlouisfed.org/series/PCOPPUSDM
  4. https://oilprice.com/Metals/Commodities/The-Worlds-8-Biggest-Mining-Countries.html
  5. https://finance.yahoo.com/news/china-factory-output-cools-retail-024336611.html
  6. https://finance.yahoo.com/news/china-home-prices-fall-fastest-014335873.html
  7. https://www.realtor.com/news/trends/worlds-most-impossibly-unaffordable-cities-5-in-usa/
  8. https://www.scmp.com/business/article/3266634/hong-kong-homes-remain-most-unaffordable-world-14th-year-research
  9. https://banananomics.co/now_the_truth_about_the_us_dollar