Up until recently the impact of Peak Oil has been relatively negligible on our local economy. But with the big rise in gas prices we've seen in recent months that's all changing. As much as I would like to report good news to you about all of this the truth is that the Temecula area stands to be hit harder than most other areas because of the long commutes many people have to work and the amount of money gasoline will now be taking out of their budgets. As I'm writing this to you, three out of the five closest homes to me across the street have now been foreclosed upon.

Two years ago I wrote to all the City Council members in both Temecula and Murrieta about the coming ramifications of Peak Oil on our community and offered to educate them on the subject, but not one of them even responded to me. Since the price of gasoline is having more of an impact on us now, I will contact one or more key members of these groups again and see if they're willing to learn more about the subject this time.

Be careful when investing in real estate right now. While property values have dropped considerably they are likely to continue dropping much further. People are excited about buying homes at the lower prices right now, and that's helping our economy, but I genuinely feel that this correction still has a long way to go. The reason is that our economy looks like it's going to get worse, and our energy prices are going to continue to increase over the next several years. We may have periods of stagnating or slightly falling energy prices along the way, but year-to-year energy prices will continue rising. And this combination of both a tougher economy and rising energy prices will cause the value of real estate to go down even further.

The best example I can give you around this is of one man in Detroit who purchased 10 homes for $70,000.00 each. The homes had previously been selling for $140,000.00 each when the economy was better, so he was convinced that he had made a great buy. But since then homes in the same neighborhood have now been selling for just $35,000.00.

So remember it's not a matter of whether our real estate values have fallen considerably. What's more important is "Are they at the bottom of where they're going to be?", and I feel that the answer is "No". The only exception would be if inflation comes back in a big way, and that alone could drive the values of properties upward.

So be prudent in your spending and pay attention to the underlying fundamentals of what's going on in our economy. And if you want to get a much better idea of when to buy and sell homes in the area, visit http://www.RealEstateTiming.com. This is Robert Campbell's Web site, and Robert correctly told everyone in Southern California in August of 2005 to sell their homes at that time if they wanted to cash out at the highest prices, and he was absolutely perfect in his assessment at that time. In addition, Robert feels that we've got a long way to go until we hit the bottom of this real estate market. I highly recommend both Robert's book and his real estate timing newsletter to you, and if you're interested you can read the May, 2008 edition of his real estate timing newsletter right here:

http://www.realestatesalescoach.com/campbell.pdf

Jim

We've been so fortunate to experience the lower gas prices we've had in recent months. It's eased a lot of pressure on people financially and has made them feel more relaxed. I genuinely hope this is a trend that will continue but I really feel with all of the data available on world petroleum supplies that we'll be looking at much higher gas prices again in 2007 through the summer. In addition, our newspaper "The Californian" has just mentioned that the home foreclosure rates in Riverside County are now the highest of any county in California. Knowing this information, we're even more fortunate locally that our gasoline prices have eased considerably.

There may not be much to report on Peak Oil again to our community until we experience a substantial rise in gasoline prices once again. This isn't because it's not an important topic for us to discuss. It's because it's not easy to get people's attention about this phenomenon as something they need to be concerned with when they're experiencing a constant lowering of gasoline prices at the pump.

If you've seen big increases in your electrical bill this summer, this is the beginning of the Peak Oil phenomenon beginning to take hold. The multiple power outages were part of the phenomenon, too.

I just about fell out of my chair when I opened my most recent electrical bill and saw how much it actually was. I then called the power company and they told me their rates had increased 55% over the last year, and that they were in the process of implementing additional increases of 15-18%. These most recent increases were supposed to take place this month, but because of public outrage they'll now be implemented in November when people's usage of electricity will be lower.

Now I'd also like to talk to you about a subject that I've been involved in for my entire 26-year career after I graduated from college, and that is real estate. I'm normally an extremely optimistic person, but it looks like real estate in the Temecula Valley area, and throughout all of Southern California, is headed for a downturn. Houses in my area are not selling, real estate agents are crying the blues about their decreased level of income, and one neighbor of mine who has had his home on the market for three months hasn't received a single offer on it.

I'm bringing this to your attention because I've been through two real estate recessions before in my career, but neither one of them had the increase in energy prices along with them that it appears we will be experiencing in the future. It's my personal opinion in watching the information closely on world energy supplies, that we could be looking at $6.00 a gallon gasoline sometime within the next five years. And when you factor in how many people drive such long distances to work from our area, this has the potential to cause some serious economic problems. And with rising energy prices being added into the mix of an already softening real estate market, we have a potential recipe for disaster in real estate values in our area, too.

Real estate values went down 30%-40% in our area in the first half of the 1990s, and that was without substantially rising energy prices accompanying the downturn. And along these lines I recently read a quote from someone who was a marketing analyst with the RTC (Resolution Trust Corporation) during the first half of the 1990s. If you remember, the RTC was created to sell off all the properties that had been taken back by foreclosure back then. Well this analyst said in looking at his mathematical models today he expects some properties in the coming years to eventually sell for 20-30% of their appraised value in 2005.

I had to swallow really hard when reading that one. I hope it never comes to pass, but I recognize that this guy was an expert in analyzing the market and selling properties during the last real estate downturn.

Personally, I hope real estate values stabilize and find a way to continue appreciating again. But there are definitely warning signs that may indicate that this isn't going to happen.

While it appears that rising energy prices are here to stay, let's just hope that we can still find ways to deal with them as effectively as possible for ourselves and our families in the months and years ahead.

I'd like to extend a personal welcome to all new members who have joined in recent weeks. Fortunately we've seen an easing of petroleum and gas prices recently and the price per gallon has been going down at the pump recently also. Hopefully this will continue for sometime but the worldwide supply is very volatile and there's not much flexibility in the overall availability and deliverability of petroleum if there are any further interruptions in the system.

Let's keep our fingers crossed for now, but we still have to deal with the ramifications of a continued increasing demand for petroleum and natural gas throughout the world along with what is set to become a decreasing supply of it.