Editing 2327: Oily House Index
Warning: You are not logged in. Your IP address will be publicly visible if you make any edits. If you log in or create an account, your edits will be attributed to your username, along with other benefits.
The edit can be undone.
Please check the comparison below to verify that this is what you want to do, and then save the changes below to finish undoing the edit.
Latest revision | Your text | ||
Line 14: | Line 14: | ||
The numerator is the average price of a new home (presumably in the US), in USD per square foot ($/sqft). It does not specify what kind of home, or where. One available metric is the [https://www.statista.com/statistics/682549/average-price-per-square-foot-in-new-single-family-houses-usa/ average price per square foot of floor space in new single-family houses in the United States] which was $118.91 in 2019. The caption refers to converting the ''mortgage'' of the new house (that is, how much the purchaser borrowed, which could be zero), while the definition simply refers to the ''new home price'' (the total value). It is not clear which of these two is used in the chart. | The numerator is the average price of a new home (presumably in the US), in USD per square foot ($/sqft). It does not specify what kind of home, or where. One available metric is the [https://www.statista.com/statistics/682549/average-price-per-square-foot-in-new-single-family-houses-usa/ average price per square foot of floor space in new single-family houses in the United States] which was $118.91 in 2019. The caption refers to converting the ''mortgage'' of the new house (that is, how much the purchaser borrowed, which could be zero), while the definition simply refers to the ''new home price'' (the total value). It is not clear which of these two is used in the chart. | ||
− | The denominator is the price of oil in USD per {{w|barrel (unit)|barrel}} ($/BBL). This is also not well defined, although the chart's caption suggests that it is based on crude oil. There are many different indices for different blends of oil in different locations, such as [https://www.investopedia.com/terms/w/wti.asp West Texas Intermediate], which is a crude oil commonly used as a global oil benchmark. (Others include Brent and Dubai Crude). The WTI price fluctuated around $55-60 throughout 2019. A barrel is a standard unit of oil volume, defined as 42 U.S. gallons (roughly 5.615 cubic feet or 0.16 cubic | + | The denominator is the price of oil in USD per {{w|barrel (unit)|barrel}} ($/BBL). This is also not well defined, although the chart's caption suggests that it is based on crude oil. There are many different indices for different blends of oil in different locations, such as [https://www.investopedia.com/terms/w/wti.asp West Texas Intermediate], which is a crude oil commonly used as a global oil benchmark. (Others include Brent and Dubai Crude). The WTI price fluctuated around $55-60 throughout 2019. A barrel is a standard unit of oil volume, defined as 42 U.S. gallons (roughly 5.615 cubic feet or 0.16 cubic metres). |
The comic then applies {{w|dimensional analysis}} to this index: dividing $/sqft by $/bbl yields a result whose dimension is a linear measurement, which can be called length. 1 barrel is 42 gallons, a gallon is 231 cubic inches, and a cubic foot is 12<sup>3</sup>=1728 cubic inches, so a barrel is approximately 5.6146 cubic feet and a cubic foot is approximately 0.1781 barrel. The average price per square foot of a new single-family dwelling in the USA in 2019 was about $119/square foot, while the price of oil in mid 2019 was about $60/BBL or $10.7/cubic foot. Dividing $119/square foot by $10.7/cubic foot gives approximately 11.1 foot. This is slightly lower than the value shown on the chart of around 15. | The comic then applies {{w|dimensional analysis}} to this index: dividing $/sqft by $/bbl yields a result whose dimension is a linear measurement, which can be called length. 1 barrel is 42 gallons, a gallon is 231 cubic inches, and a cubic foot is 12<sup>3</sup>=1728 cubic inches, so a barrel is approximately 5.6146 cubic feet and a cubic foot is approximately 0.1781 barrel. The average price per square foot of a new single-family dwelling in the USA in 2019 was about $119/square foot, while the price of oil in mid 2019 was about $60/BBL or $10.7/cubic foot. Dividing $119/square foot by $10.7/cubic foot gives approximately 11.1 foot. This is slightly lower than the value shown on the chart of around 15. | ||
− | The chart's caption then interprets that length as the depth that a new home could be filled with the crude oil that could be purchased with its price. For scale Cueball and Megan has been drawn, and the ceiling height of a typical house has been indicated, showing that only in time with deep crisis will the oil not fill the house | + | The chart's caption then interprets that length as the depth that a new home could be filled with the crude oil that could be purchased with its price. For scale Cueball and Megan has been drawn, and the ceiling height of a typical house has been indicated, showing that only in time with deep crisis will the oil not fill the house. |
The index is high when house prices are high and oil prices are low (such as during the 1999 oil glut), and low when house prices are low and oil prices are high (such as during the 1979 energy crisis). See details about the [[#Chart|chart]] below. | The index is high when house prices are high and oil prices are low (such as during the 1999 oil glut), and low when house prices are low and oil prices are high (such as during the 1979 energy crisis). See details about the [[#Chart|chart]] below. | ||
− | The title text, "We're underwater on our mortgage thanks to the low price of water", is a pun. A mortgage on a property is considered to be [https://www.investopedia.com/terms/u/underwater-mortgage.asp | + | The title text, "We're underwater on our mortgage thanks to the low price of water", is a pun. A mortgage on a property is considered to be "underwater"[https://www.investopedia.com/terms/u/underwater-mortgage.asp] when the value of the mortgage exceeds the value of the property. This is bad for both the owner (who owes more money than the property is worth) and the bank (who now have a loan which is not fully secured against a default: if the property owner defaults, the bank will lose money in selling the property). |
− | The title text is hinting at an alternative index based on the ratio of house price to the price of water instead of oil | + | The title text is hinting at an alternative index based on the ratio of house price to the price of water instead of oil. If the price of water fell, then the index would rise, causing the house to be even deeper in water (following the metaphor of the index as filling the house with physical water). This situation could arise even if the property value remained high, although Randall may be humorously suggesting that the increase in the index would literally flood the property with water, which would then damage it, obviously decreasing its value. (If the index continues to be computed on average house prices, then this single event would not materially impact the index as a whole.) |
− | |||
− | |||
===Chart=== | ===Chart=== | ||
Line 43: | Line 41: | ||
:In 2014-16 there was a serious surplus of {{w|crude oil}}, partially caused by increasing shale oil from the US and Canada, a slowdown in demand from China, and increasing fuel efficiency and use of renewable energy. Prices dropped from $125/BBL from 2012 to below $30 in January 2016. By October 2018, prices had recovered to $85/BBL. ] | :In 2014-16 there was a serious surplus of {{w|crude oil}}, partially caused by increasing shale oil from the US and Canada, a slowdown in demand from China, and increasing fuel efficiency and use of renewable energy. Prices dropped from $125/BBL from 2012 to below $30 in January 2016. By October 2018, prices had recovered to $85/BBL. ] | ||
;OHI briefly became infinite as oil prices reached zero in 2020 | ;OHI briefly became infinite as oil prices reached zero in 2020 | ||
− | :In April 2020, the {{w|coronavirus pandemic}} dramatically reduced vehicle and air transport, crashing oil demand. | + | :In April 2020, the {{w|coronavirus pandemic}} dramatically reduced vehicle and air transport, crashing oil demand. Oil prices actually went to zero, and even below, several times: oil producers paying consumers to take their oil, to avoid the costs of storing it.[https://www.afr.com/markets/commodities/oil-market-in-turmoil-as-price-falls-below-zero-20200421-p54lz3] Dividing anything by zero yields infinity, hence the "infinite oily house index". The graph should actually wrap around to the negative axis at this point. |
==Transcript== | ==Transcript== | ||
− | + | {{incomplete transcript|Do NOT delete this tag too soon.}} | |
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
− | |||
{{comic discussion}} | {{comic discussion}} | ||
[[Category:Line graphs]] | [[Category:Line graphs]] | ||
− | |||
[[Category:Comics featuring Cueball]] | [[Category:Comics featuring Cueball]] | ||
[[Category:Comics featuring Megan]] | [[Category:Comics featuring Megan]] | ||
− |