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Autumn 2005

2005: A HALF-YEAR OF RECORD AFTER RECORD.

This issue reviews and summarizes Whidbey Island real estate sales during the first half of 2005 ' January through June. Very low interest rates continue close to 40-year lows. Overall residential sales increased across the board. Prices, in general continue to rise. During the first half, the average home price rose 16.5%. At the same time total sales dollars for all residential real estate island-wide rose a remarkable 36.1% from last year. For residential SFD properties, the South Whidbey market area (including Coupeville, Langley, Clinton, Greenbank and Freeland) saw sales numbers rise 13.9%, while in the Oak Harbor/North Whidbey market area they rose 25.5%. A further indication supporting increased activity is that 'average days on market' (DOM), fell 16.5 throughout the island. Especially impressive is sales activity in Oak Harbor. All the north-end reflects the heavy U.S. Navy influence in Oak Harbor, where Naval incomes based on technical skills are rising rapidly. Total sales dollars in Oak Harbor rose 41.2% during the half-year. After reviewing changes in the real estate market, we make some predictions for the remaining half of 2005, makes comments on America's Energy Posture, and close with our usual near-term economic predictions.

ONE MORE EXTRAORDINARY YEAR! For the year to date total residential sales rose from last year's $140.0 mil. to $190.6 mil. Residential sales numbers rose somewhat, from last year's 582 to 699. Of these 65 were manufactured homes, 61 were condominiums and 49 were multifamily units within 18 properties, many duplexes, - the remainder were Single-Family Detached (SFD) homes. 

Land sales continued the rise begun two years ago after several "soft" years. Land sales numbers, island-wide, were up 30.6% since last year, however, dollar volume was up a dramatic 43.6%; meanwhile DOM dropped 28.8%, compared to last year. Land sales numbers rose from 212, island-wide, to 277 through June. Sales numbers were roughly balanced between lots and acreage's, 166 versus 111, caused by the large number of new lots in Oak Harbor for new construction. The impact of our Growth Management Act regulations continues ' as most development is constrained to Oak Harbor. The "average" acreage sale at $148,700 was 60% higher than the "average" lot sale ($90,800). In all, there were $16.5 mil. in acreage sales and $15.1 mil. in lot sales. Residential sales, of course, remain by far the more important segment of our real estate in numbers and dollar flows.

Standard Single-Family Detached Home Sales, and Other Sales, January-June (2005)

Previously Built Homes

New Construction Homes

OTHER THAN STANDARD SINGLE FAMILY DETACHED
RESIDENTIAL SALES(North & South Whidbey 2003)

* There are probably more "manufactured" sales that are counted as SFD
#=number of sales, with number of units/unit price

The Table is very abbreviated, because of some limitations with HTML. Contact us to send you a printed or faxed copy, together with the published Tables documenting fourteen years of South Whidbey and North Whidbey sales, by residential category.

 In the above Table, DOM refers to the number of "days on market", while "percent share" means the percentage of all residential sales. Coupeville has completed its transition into the South Whidbey marketplace, we will no longer include it in our North Whidbey analysis. The Zip code for Oak Harbor (98277); is North Whidbey and everything from Coupeville south is South Whidbey: Coupeville, Langley, Greenbank, Freeland and Clinton. What significant changes have occurred during the year? The impressive rise in the price of all real estate is the most remarkable trend. First, North Whidbey is "booming". Absent dramatic personnel reductions at NAS Whidbey (something that might occur in the next few years but not in this BRAC cycle), the greater Oak Harbor area continues to come into its own as a retirement community. Within the past five years the availability and quality of retail goods has increased impressively. Significant mission changes at NAS into long-range turboprop anti-submarine aircraft with many more officers and senior enlisted personnel per squadron than was the case with previous fighter-bomber basing. Salary increases, those following rising education standards and outside competitive forces in the private sector, along with rising housing allowances (BAH), have stimulated local new construction to record levels (and record prices). Although rental rates are high, many are unwilling to rent older apartments or the tiny condo units that were built in the past twenty-years. Adding to this Navy impact is the increasing number of retirees who "discover" Whidbey Island, and prefer the small town sense of community and shopping in Oak Harbor. Another factor affecting home buying patterns and new construction is the accumulating impact of the State's Growth Management Act (GMA). Our county is especially impacted. GMA basically inhibits development in the county, except within "urban growth areas". On Whidbey there is only one literal "urban" area - Oak Harbor (though Coupeville [2,300 population] and Langley [980 population] are technically "urban growth areas"). GMA virtually prohibits development elsewhere. Politics have created a vacuum. Oak Harbor has responded.

New affordable development lots in Oak Harbor are now so valuable (averaging about $85,000) that successful builders are developing for their own account and selling, at their pleasure, some lots to eager builders needing ready-to-build parcels. Expect this trend to continue. While "spec" home sales in Oak Harbor are rising dramatically in both numbers and prices. Such sales continue to decline on South Whidbey. Only 18 new "spec" homes were sold on South Whidbey, but some of these were larger, rather expensive homes. The appearance of new homes selling for more than $350,000 is a new phenomenon on the island. Expensive "spec" homes (those above $300,000) sell slowly, however, they are selling. Custom home construction increased in numbers and average values, even though these do not appear as sales data. Condominium sales are rising slightly, but continue to decline as a percentage of the market, and manufactured home sales continue to decline. Homes under $100,000 have virtually disappeared (even condo sales average almost $155,000) - most are on North Whidbey. The number of expensive homes sold rises each year. During the first half of this year 179 homes sold for more than $300,000; and 59 of these sold for more than $450,000. These "upper-tier" sales continue to be intriguing as they document the direction of change as Whidbey Island becomes a "preserve" for the well to do and the truly wealthy. Sales numbers over $300,000 have increased over 53 percent, compared to last year.

LAND TRANSACTIONS: IMPRESSIVE During the six-month period there were 277 land sales; 218 on South Whidbey totaling - $22.9 mil. On North Whidbey there have been only 59 land sales, totaling $8.6 mil. Sales for land totaled $31,567,776. This is the second year, in the last five, in which land sales have strengthened. On North Whidbey the average transaction price, including both lots and acreage's, is $145,988. This high price per lot is based on the fact that there are more, larger, acreages available on North Whidbey. On South Whidbey the "unintended consequence" of GMA has been to push the south end, especially, toward becoming a "rich enclave of the privileged". Here the average land sale is almost $106,000 (lower because there are still large numbers of buildable lots on South Whidbey); about 43% of the transactions were acreage's.

 Introduction. It remains a sad fact that our country as she enters the 21st-century still has no national energy plan. We do have, and have had since 1969, an energy 'policy;' consume the oil of other producers, while 'preserving' our national supplies. This is not an irrational policy, but it is not a substitute even for an oil plan - let alone an energy plan. Given the wide range of energy resources, revolutionary changes in technology, and world instability, we need such a plan. As a modest contribution toward many of the key points, let's explore some of the complex issues[1]. We'll focus on the major hydrocarbon energy resources: coal, gas and oil.

As a nation we have become too addicted to oil. Our consumption of oil has increased over 300% since 1950; oil use increasing faster than the growth of total energy consumption. As a statistic, each U.S. resident consumes two and a half gallons of oil per day - 722,500,000 gallons (17,200,000 barrels)!

Energy costs inform everyday conversation and political positions of every persuasion. In addition to a host of technical, perceptual and political challenges, the end-user consumption of all hydrocarbon energy is filtered through economics. One colossal problem is that we do not know with great precision how much oil, gas, or coal (in all their manifest forms) exists as a resource. When we speak of oil 'reserves,' we mean oil that is known to exist and can be economically recovered. It is vital to understand the term 'economically recovered,' because a $10 rise in the price of bench-mark oil directly causes world oil reserves to rise by approximately 10 mmb (million, million barrels). The same occurs to a lesser extent, with gas or coal. This 'good news' is offset somewhat by the 'bad news.' Although new resource is developed every year, for the past two decades the world has consumed roughly three barrels of oil for every barrel of new oil 'discovered.'

In 1948, Dr. Marion Hubbert a much-respected petroleum geophysicist suggested that the world's 'peak' in oil production would soon occur in the U.S. - by 1970. His original thoughts were published in Science in 1949, restated in 1956 (Petroleum Week, March 16, 1956, pp 9-10), and refined and amplified thereafter. Hubbert's predictions emphasize the 'finite' nature of all resources; however, time has proven his major predictions were erroneous. What is called 'Hubert's Peak,' has been a rallying cry for some politicians and their 'running dogs,' however, the chatter has generated more smoke, than light. The world can never run completely out of any resource. That resources' production will become cost prohibitive, long, long before the resource is exhausted. On the other hand, 'Given the long lead times required for significant mass-market penetration of new energy technologies, this result in no way justifies complacency about both supply-side and demand-side research and development' (Long-Term World Oil Supply Scenarios, U.S. Energy Information Administration, July, 2004).

In the balance of this paper, we'll review the interlocking relationships between our common energy icons, oil, natural gas and coal, and other hydrogen resources. All chemical energy is dependent upon hydrogen ' the most common element in the universe. Then, we'll briefly note some of the myriad 'alternative' energy resources; some we are quite familiar with, and others we are unlikely to have ever heard of. We end with the skeleton outline for a national energy plan. If such a plan were adopted, we Americans would enjoy almost unlimited access to that energy which is the key to our well-being and security as a nation.

Hydrocarbon Resources. One of the gigantic problems with energy reserves[2] is they are 'damnably' difficult to measure. Experts often disagree. What experts do share is the common knowledge that rising prices for any energy resource are quickly matched by price rises of 'competing' resource. The recent steep rise in crude oil prices has been matched by equivalent rises in gas and coal prices. While not a pleasant outcome for consumers, there is agreement that new technologies become more and more viable as 'cheap oil' disappears. The cost of gasification of coal, liquefication of gas, retorting of shales, tar sands extraction and the horrific costs of deep well exploration, all become viable with $60/barrel oil. High prices have the salutatory effect of increasing our total proven reserves dramatically. High prices also force us to be more conscious of energy conservation; the pathway to wiser use of all resources. Currently, there are no complete studies of the appropriate adjustments to be made to proven reserves, however, those studies completed within the past four years, assume 'cheap oil.'

Even with our too heavy reliance on oil, we could achieve 'energy independence' entirely with oil resources within the U.S. for many years into the future. The House Energy Committee's 2004 Report estimates that U.S. oil production will increase by .8 mbpd (million barrels per day) by 2010. Twenty-five percent of the increase will come from the National Petroleum Reserve in Alaska (NPR-A)[3], another 37.5% from enhanced recovery (using injected CO2), another 18.7% from Alaska heavy oil recovery, and a final 18.7% from Alaska's Outer Continental Shelf (OCS), especially the North Aleutian Basin.

Notwithstanding our wasteful habits of oil consumption, neither the U.S. nor the world is 'running out of oil.' We are running out of 'cheap oil.' In the massive USGS study of oil, "World Petroleum Assessment 2000,' conventional crude oil reserves were estimated at 3,000 mmb; up from earlier estimates of 2,400 mmb and 1,500 mmb from 1994 and 1990, respectively. These estimates refer only to conventional oil, oil in its liquid form ' oil that is both accessible and available. This does not include oil shales, tar sands or heavy oil; nor does it include deep ocean drilling, Arctic or Antarctic potential and much Outer Continental Shelf (OCS) resource.

By 2030, it is forecasted that we will have increased production by 11.1 mbpd (million barrels per day), a full 89% of total oil consumption in 2004! These production increases will come from extraction from western oil shales (4.0 mbpd), enhanced CO2 recovery nationwide (2.0 mbpd), OCS; Alaska; the North Aleutian Basin (1.5 mbpd), Alaska heavy oil conversion (0.8 mbpd), continental tar sands (0.5 mbpd), and continental heavy oil (0.5 mbpd)[4]. The balance of increased production includes .6 mbpd from NPR-Alaska. All of these estimated increases were based on assumptions of well-head oil prices of not more than $22/barrel![5]. It is unlikely, almost beyond measure, to believe that oil will return to such values. The U.S. has very large 'proven reserves' for all forms of energy. The USGS/CIA estimates of our 'proven reserves' total 3,000 mmb of liquid only oil, 2,000 mmb of tar sands, 2,000 mmb of oil shale. Undoubtedly, some of this resource may turn out to have been overestimated, while other resource will be underestimated. Historically USGS estimates have tended to be quite conservative ' even very conservative. We have been unable to find a USGS estimate that overestimated actual production.

Alternative Energy Resources and Technologies. The currant high cost of oil, gas and coal has stimulated magnificent response from energy research and development efforts. Successes include new techniques for the exploration of resource, resource development, processing resource into product and finding market acceptance. Processing energy can involve very complex technologies that because of the nature of carbon molecules usually create many byproducts. However, all hydrocarbon technologies pose challenges[6]. Oil refining, as an example, creates a range of useful products, from gases to asphalt; each with a different specific gravity. The lightest product is hydrogen (often sold to chemical companies), ranging downward to asphalt, through various dissolved gases (often 'flared-off'), petroleum ether, gasoline, kerosene, gas oil, lubricating oils and fuel oils. The quality of the crude dramatically increases or decreases the amount of recovery for any particular fraction. To get more gasoline, per barrel, one gets less fuel oil. The product mix depends on demand. That is why gasoline prices increase during summer months and fuel oils increase during winter months, as refineries adjust to market forces. All resource alternatives must, in the end meet marketplace realities.

The prevailing theory is that all coal, natural gas and crude oil have a fossil origin. This is what we were taught in High School; that hydrocarbons are the product of decay of bio-organic matter mediated by earth processes of pressure and temperature - during the last 200 million years. Another theory is gaining favor, because studies of very deep deposits (those below about 12,000 feet) of gas and oil indicate no presence of fossil activity. If true, this new theory (actually an idea almost 80 years old) will have a profound impact on everything we think we know about gas and oil. This new theory is called 'abiosis;' meaning that oil and gas are not of fossil origin, but are created continuously by deep earth processes acting directly on pure methane from the earth's mantle ' at the bottom of our crust, between 25 and 40 miles below the earth's surface. The first clues were gained when measures of the amount of oil withdrawn proved too large to be accounted for by organic decay and transformation. Further supplementary evidence is the fact that many older, sometimes abandoned fields are once again producing gas or oil. The final evidence will come from extremely deep drilling, well beyond present drilling techniques. Current technology limits drilling depth to 40,000 feet (about 7.5 miles). Within the next decade or two, drilling technologies will permit depths of perhaps 50 to 100 miles! This is not science fiction. If confirmed, everything we now know about petroleum reserves could change and presumed limits of supply could have us using oil and gas for millions of years into the future. The costs will be enormous, but we have already passed the age of 'cheap oil.' Three major technology shifts have arisen from higher-cost energy: more and better science; geophysics, geology and engineering, great advances in industrial and chemical processing, and a broad range of new energy fuels. Advances in geophysics and geochemistry, as well as engineering have led to the development of huge off-shore drilling platforms, now capable of creating an entire gas or oil field from a single location. These technologies will soon lead to very deepwater platforms and ship rigs capable of enormously deep drilling ' in 25,000 feet of ocean. At present, the Bertha Rogers well in Oklahoma is America's deepest production well, at 32,000 feet. Eventually these efforts will make possible recovery of the vast amount of deep sea methane. We have another huge dispersed resource in 'stranded' gas. An estimated 2,500 tcf (trillion cubic feet), is entrapped in formations too far from processing or consumption to be economic. At current energy prices, however, there is a massive effort being made to locate and exploit the larger entrapments. An additional 400 bcf is 'flared-off' annually at the wellhead, or is re-injected into oil wells to increase pressure and flows.

Among the potential alternative chemical energy fuels, are many that offer some unique qualities or characteristics. For instance: biodiesels, internal combustion fuel made by partially refining vegetable or animal fats; bioethanols, the ethanol process, applied to grasses, shrubs and trees as feedstock; butanol, a remarkable idea for a complex alcohol fuel that can be made from any, or all, biomass feedstock. To take a small diversion, butanol processes are less expensive to derive than other biofuels; they can be burned in pure form, or admixed with other fuels as an extender. Butanol has higher Btu content than most biofuels, and can be transported and dispensed through existing pipeline and storage facilities and has lower tailpipe emissions than either gasoline, diesel or other common biofuels ('Acetone-Butanol Fermentation Revisited,' Microbiological Reviews, Dec., 1986, Vol. 50, No. 4), Ethanol, the fermented and distilled grain starch substrate from our most common feedstock ' corn, Hydrogen as a direct fuel; either (1) steam reformed from natural gas, or (2) electrolysis of water to separate out the oxygen, and Methanols, fuels made from the steam reforming of natural gas. Expect many new such options as energy prices remain at today's levels.

Industrial developments in processing, refining and handling fuels have kept pace with other developments in the 'oil patch.' A number of proven technologies demonstrate the technical ability to convert, for instance, both coal and gas to liquid as oil. Coal to liquids (CTL) conversion becomes feasible when extensive coal seams are shallow ' greatly reducing the costs of strip mining and restoration ' let alone the pollution problems of burning coal. Gas to liquid (GTL) technologies lend themselves well to 'stranded' gas situations with the added benefit that the liquid fuel recovered has neither sulphur nor aromatics. This low emission fuel can be used in any modern vehicle. Several oil industry research subsidiaries are working on a very pure hydrocarbon fuel that can serve as a universal military fuel; one that can be used in all applications, from vehicles, to jet planes, to naval vessels. Coal (coalbed methane process) can also be transformed directly into natural gas. Gas hydrates, contaminated frozen gas/water mixtures, now completely unexploited and left in underground deposits can also be liquefied and recovered. Notwithstanding the enormous economic risk and political resistance to building refineries, we have slightly raised refining capacity with new industrial techniques. Although 115 refineries have been scrapped or 'mothballed' since 1982, the remaining 148 have increased their capacity from 15 mbpd to 17 mbpd, even though no new refinery has been built in the U.S. since 1976.

Energy Planning. Sometimes we ask, isn't all this talk about oil and gas reserves just a 'conspiracy' by the oil companies to manipulate supply for profit? The 'counter conspiracy' is we are virtually out of oil and being held hostage by Middle Eastern and other oil-producing countries. Alas, neither is true. There are no great 'capped reserves' hiding anywhere. The development of oil and gas fields require such enormous capital investment that no oil company, whether Exxon Mobil or independent 'wildcatter,' could bear the costs of exploration and development, only to leave the energy in the ground. The oil and gas industry is exquisitely sensitive to economic realities. In only a few cases are very deep deposits not developed as producing fields because the costs of extraction await the price rises that have characterized the past few years to justify profitable development. Another question sometimes asked is, why don't we just explore and drill more when prices are high? We do! In fact, worldwide there is no excess drilling capacity; every drill rig is in use today. The giant ocean platforms now in use require years and years to construct and cost 'hundreds of millions of dollars' each. We also suffer from limits of available technical personnel. What used to be largely 'grunt work' in the oil patch has now become unbelievably sophisticated technology, requiring the lengthy education and deployment of various scientists, geologists, engineers and technicians. Our national interest is further challenged by the increasing competition for oil from such growing giants as China and India. However, steady, methodical American technology will prepare us for a broad balance of energy strategies, so that when conventional world crude oil production may be reasonably expected to 'peak' ' sometime between 2030 and 2035, we are prepared.

Implicit to a reasonable energy plan, is an effort to increase our energy independence; to make our nation less vulnerable to the vagaries of world politics. Today the issue is oil. Tomorrow, either oil will be found in locations that are less threatening to our nation, or we will better develop the many alternative energy resources available to us. We, ourselves, are largely responsible for our energy problems ' we want energy without great cost or inconvenience. We have made some intelligent moves recently. An example: the Energy Policy Act of 2005 that authorizes the government to complete the recently expanded National Petroleum Reserve and to fill it from 700 mb to 800 mb. The act also authorized increasing the Reserve capacity to 1 mmb at several new locations.

Let's review the principal elements of a sound national energy plan. What would we ask of such a plan? (1) We would reduce our dependence on foreign energy resources of all kinds. We live in an exceptionally dangerous world, but in a nation that is remarkably rich in hydrocarbon resource, and the technology leadership to develop dozens of energy options. (2) We should move aggressively to reduce our dependence on 'fossil fuels.' The high costs of energy today, are likely to continue, and this will provide the economic incentive to work on 'renewable' resources. (3) We should undertake a massive effort to harness hydrogen directly. Think hydrogen ' the universe is awash in hydrogen. Its full exploitation would both provide fuel for light transportation vehicles, and re-emphasize and re-focus on 'nuclear' power for electric generation[7]. (4) We should permit, encourage, and in some cases subsidize on national security grounds, the research and development of renewable or continuous energy resources ' including especially fission/fusion technology. (5) We should permit and support with national legislation, parallel codependence among the dozens of viable energy resources that are feasible, but without special subsidies. The 'invisible hand' of the marketplace will be the final arbiter of energy values and efficiency ' no matter what government or pressure groups want. (6) It is scientifically unlikely, but possible, that free carbon dioxide (CO2) released into the atmosphere plays some role in climate change. To 'plan' for this outcome, we should develop more and better technologies for carbon sequestration. Government research organizations should lead this effort. It is entirely appropriate that national government play this national and international contingency role. Finally, (7) for a national energy plan to be successful we as a people must learn to see through the many preposterous claims of the radical environmental movement, the panders of politicians seeking approval and the minions of newsmakers, ever anxious to provide media 'news/entertainment' 24-hours a day. Energy matters are matters of science and engineering technology, not political whim, characterized by bluster and assertion. The health of our economy and the ability of America to lead the world in technology through this century will be tested by how well we understand and implement our 'energy challenges.' We should also relax in the knowledge that we have many, many energy resource options at today's energy prices ' if we have a plan! In the end, 'oil's well that ends well.'

[1] When we commonly speak about 'energy,' we are usually discussing fuel sources. Energy is the output; fuel provides the energy source. There are hundreds of 'fuels', therefore let's simplify and categorize 'fuels' in this footnote rather than marginalize the major energy issues. All fuels derive from solar/cosmic processes. First, consider the direct solar energy sources: hydroelectric dams, wind, waves, tidal action, ocean thermal conversion, biomass (vegetation, including trees), sewerage and biofuel cogeneration. The latter are chemical fuels from sunlight (via the process of photosynthesis). All are 'peripheral' fuel sources ' that except for hydroelectric, provide in the aggregate, tiny amounts of consumed energy. In future these resources will become more important as exploitive technologies are developed. None figure significantly in our discussion. Other chemical fuel technologies include: thermophotovoltaics (the conversion of electromagnetic radiation into electricity), thermonuclear fusion, and nuclear fission. Only the last figures somewhat at present as a useful, practical energy resource. Finally, we have the fuels mediated directly by geological processes: geothermal, tar sands, oils shales, lignite, coal bed methane, natural gas hydrates, coal, natural gas (methane) and oil. The latter three, coal, gas and oil, provide most of the world's consumed energy

[2] 'Energy reserves' is a technical term for the amount of resource deposit, factored for the cost of production, minus the amount of the deposit not technically recoverable. Such estimates are 'elastic' in that the higher the cost of energy equivalents, the more resource potential becomes 'proven reserves.' With today's prices our national proven reserves have risen astronomically

[3] USGS Fact Sheet 045-02 (2002) concludes that the 'technically recoverable, undiscovered oil beneath the Federal part of NPR-A likely ranges from 5.9 to 13.2 billion barrels. Of the original U.S. domestic reserves in place of 582 billion barrels, only 183 billion barrels have been produced. There are an additional 22 billion barrels of proved reserves. 60 billion additional barrels are potentially producible with advanced CO2 enhanced oil recovery technology.' See also: A Technical and Economic Assessment of Domestic Heavy Oil, April, 1987; estimating 'that Alaska has 25 billion barrels of heavy oil in large reservoirs (each over 20 billion barrels). The West Sak field alone contains more than 10 billion barrels of heavy oil.' In the continental U.S. there are documented another '100 billion barrels, originally in place' as known reserves. 'More than 80 billion barrels are in 248 large, heavy oil reservoirs (each over 20 million barrels). The bulk of the heavy oil resource is located in three states ' California with 42 billion barrels, Alaska with 25 billion barrels, and Wyoming with 5 billion barrels. Smaller accumulations of 1 to 2 billion barrels (in reservoirs over 20 million barrels each) exist in Texas, Louisiana, Mississippi, and Arkansas.' Further, see: MMS (Mineral Management Service) report, USDOI; RP2N, 2003, 'Most of the offshore Alaska production will be from the Arctic, but 120,000 bpd in 2015, 200,000 bpd in 2020, 180,000 bpd in 2025, and 140,000 bpd in 2030 will be from the North Aleutian Basin/Bristol Bay per unofficial estimates of MMS. Starting in 2015, the production from the Alaska OCS could easily be two to three times larger than the estimates included in this table. The Arctic OCS has the geologic potential of including at least half a dozen Prudhoe Bay-sized accumulations.'

[4] Major Tar Sand and Heavy Oil Deposits of the United States (July, 1983). This report found that 'the total U.S. tar sand resource base is estimated at 54 billion barrels of oil. The measured in-place resource for major deposits is 22 billion barrels and the speculative resource in place for major deposits is estimated at 31 billion barrels (not including the potential of offshore California). This total resource estimate of 53 billion barrels, is concentrated in Utah (20.1 mmb), Alaska (10.0 mmb), Alabama (6.5 mmb), Texas (4.8 mmb), California (4.7 mmb), and Kentucky (3.4 mmb)

[5] Sometimes energy deposits in production are hugely underestimated. In 1899, one of California's major production areas, the Kern River Field, was opened. KRF produced uncounted millions of barrels, and in 1941 was estimated to have a proven reserve of 56 mb (million barrels). In the intervening 50-years KRF has already produced over 735 mb, 13 times proven reserves, and has today still, another estimated 970 mb of reserve

[6]We consistently use the term 'hydrocarbon' throughout this paper to refer to the entire range of 'fossil fuels,' as a convenience

[7] Notwithstanding public fears of nuclear power, fission energy is the safest form of energy ever developed - despite concerns over nuclear waste. Once re-established, our present fission knowledge will stimulate technologies to make breeder reactors and eventually fusion possible. Fusion will not only produce no waste whatever, except heat, but existing nuclear waste can even be used as a fuel source for a fusion reactor. With eventual inexpensive fusion, enough energy will be in surplus for the fusion destruction of all forms of waste ' down to household waste

ECONOMIC PREDICTIONS FOR SECOND-HALF OF 2005. Our national economy is on a somewhat bumpy road, but the overall economy remains quite strong. Housing is quite simply, booming! It is much too early to evaluate the impact of 'hurricanes and flooding' on the public and private sectors. Investor confidence is softening although the market remains high. Virtually all the 3.5 mil. jobs lost between 1999 and 2003 have been absorbed. This job replacement has not been "high-paying, traditional" union employment. That is gone and will not return. Job growth is 75% lower-paying service employment and 25% extremely high-paying technology employment (open only to those with technical educational and previous employment experience). Our basic economy produces more and more with less and less employment, while our specialized economy requires labor intensity ranging from minimum wage labor to technology workers producing "tens of millions" in added value to the national and regional economies. Positive economic growth continues at about twice the rate of inflation - almost 4% is projected for the year. And remember given the scale of our huge economy even this modest growth represents almost $300 bil., annually. Given world uncertainties, this is an excellent record. By way of contrast the rest of the world is struggling with recession, made worse for them by the weakening U.S. dollar and higher energy costs. Consumer confidence is uneven but actual consumption remains strong (very strong), driven partly by very low interest rates. The housing market also continues to rise at an incendiary rate, and it now seems possible that we will duplicate 2004's sales record for housing. New construction is also headed for an eventual slowdown simply because recent rapidly rising prices, absent rising incomes, means that qualified buyers are falling along the wayside. Also, beyond another year at most, very low interest rates will not continue to stimulate as the marketplace for homes and automobiles becomes saturated. Federal tax cuts provide further stimulus, but the large federal government expenditures for defense, anti-terror and disaster activities presage rising government expenses, whether from an expanding economy or deficit financing. On the weak side, deficits are too high and rising ' and oil prices will eventually have an impact. Just as the airline, travel and hospitality industries have recovered to pre-911 levels, all face the reality of high energy costs. On the strong side, productivity is improving impressively, agriculture is strong, and corporate profits are rising. Stocks have recently exploded but will continue to be volatile, although companies with real earnings should continue to see impressive stock price levels. The bond market is very strong and should continue to be strong. as the rest of the world looks for a safe haven for their dollars. It's not gentlemanly to be "jingoistic" but those who cry "EU" are being fools. Simply Europe has larger bond investments in the U.S. than it has investment in itself! As for stocks without earning capability, they will continue to have their prices manipulated by the securities industry and speculators - as they have for the past eight years. We'll repeat this again; we live for many years to come in great uncertainty. Our nation continues to be vulnerable to events over which we have limited control. As we have noted for the past two years, it will be an interesting "ride". Stay tuned!

Copyright 2005. All rights reserved

Spring 2005

2004: A YEAR OF CONTINUING RECORDS.

This issue reviews and summarizes real estate activity and the all time record sales year that was 2004. Very low interest rates, dipping below 40-year lows, continue to stimulate real estate activity on Whidbey Island and throughout the country. Overall residential sales numbers, year to year rose across the board, including average prices, sales numbers and total sales dollars. For the island as a whole, total sales dollars rose 37.7% from last year. For residential SFD properties, on South Whidbey sales dollars were up an extraordinary 99.2% due to the increase in high-priced homes. In Oak Harbor/North Whidbey, total sales dollars rose a modest 5.0%, though average prices rose significantly. Especially impressive were sales in the Coupeville area, often called Central Whidbey; where sales dollars rose 27.7% as that area becomes a market area fully common with South Whidbey. All the north end reflects the heavy U.S. Navy influence in Oak Harbor. After reviewing changes in the real estate market, we make some predictions for the first-half of 2005, makes comments on, Democracy: A Legacy, and close with our usual near-term economic predictions.

ANOTHER EXTRAORDINARY YEAR! For the year total residential sales rose from last year's $250.1 mil. to $344.4 mil. Residential sales numbers rose somewhat from last year's 1,236 to 1,347. Of these 88 were manufactured homes, 100 were condominiums and 69 were multifamily units within 18 properties - the remainder were Single-Family Detached (SFD) homes.

Land sales continued the rise, a phenomenon that began three years ago after several "soft" years. Sales dollar volume was up a dramatic 36.7%, while sale numbers were up 20%, compared to last year. Land sales numbers rose from 384, island-wide, to 461 through December 2004. Sales numbers of 'lots' (parcels smaller than an acre) were 64% of sales, 281 versus 187 for acreage parcels. A large number of new lots in Oak Harbor for new construction were created this year. The impact of our Growth Management Act regulations continue - development is being constrained to Oak Harbor. The "average" acreage sale at $157,400 was over twice that of the "average" lot sale ($66,600). In all there were $29.4 mil. in acreage sales and $18.7 mil. in lot sales. Residential sales, of course, remain by far the more important segment of our real estate in numbers and dollar flows.

Standard Single-Family Detached Home Sales,
Except Manufactured Homes,
January-December (2004)

Previously Built Homes

New Construction Homes

Other Than Standard Single Family Detached (SFD)
Residential Sales (North- South Whidbey 2004)

* There are probably more "manufactured" sales that are counted as SFD
#=number of sales, with number of units/unit price

The Table is very abbreviated, because of some limitations with HTML. Contact us to send you a printed or faxed copy, together with the published Tables documenting fifteen years of South Whidbey and North Whidbey sales, by residential category.

In the above Table, DOM refers to the number of "days on market", while "percent share" means the percentage of all residential sales. While Coupeville transitions into a market area similar to South Whidbey, we continue to include in our North Whidbey analysis the Zip codes for Coupeville and Oak Harbor; South Whidbey being everything south of Coupeville - Langley, Greenbank, Freeland and Clinton. What significant changes have occurred during the year? The impressive rise in the price of all real estate is the most remarkable trend. First, North Whidbey is "booming". Absent dramatic personnel reductions at NAS Whidbey (something that might occur in the next few years), the greater Oak Harbor area continues to come into its own as a retirement community. Within the past four years the availability and quality of retail goods has increased impressively. Significant mission changes at NAS into long-range turboprop anti-submarine aircraft with many more officers and senior enlisted personnel per squadron than was the case with previous fighter-bomber basing. Salary increases, those following rising education standards and outside competitive forces in the private sector, along with rising housing allowances (BAH), have stimulated local new construction to record levels (and record prices). Although rental rates are high, many are unwilling to rent older apartments or the tiny condo units that were built in the past twenty-years. Adding to this Navy impact are the increasing number of retirees who "discover" Whidbey Island, and prefer the small town sense of community and shopping in Oak Harbor. Another factor affecting home buying patterns and new construction is the accumulating impact of the State's Growth Management Act (GMA). Our county is especially impacted. GMA basically inhibits development in the counties, except within "urban growth areas". On Whidbey there is only one literal "urban" area - Oak Harbor (though Coupeville and Langley are technically "urban growth areas"). GMA virtually prohibits development elsewhere. Politics have created a vacuum. Oak Harbor has responded.

New affordable development lots in Oak Harbor are now so valuable that successful builders are developing for their own account and selling, at their pleasure, some lots to eager builders needing ready-to-build parcels. Expect this trend to continue. While "spec" home sales in Oak Harbor also rose dramatically in both numbers and prices, such sales continue to decline on South Whidbey. Only 35 new "spec" homes were sold on South Whidbey, but some of these were larger, rather expensive homes. The appearance of new homes selling for more than $350,000 is a new phenomenon on the island. Expensive "spec" homes (those above $300,0000) sell very slowly, however, they are selling. Custom home construction increased in numbers and average values, even though these do not appear as sales data. Condominium sales continue to decline, as a percentage of the market and manufactured home sales have also declined. Homes under $100,000 have virtually disappeared (even condo sales average almost $138,420 - most are on North Whidbey). The number of expensive homes sold rises each year. This past year 297 homes sold for more than $300,000; and 96 of these sold for more than $450,000. These "upper-tier" sales continue to be intriguing as they document the direction of change as Whidbey Island becomes a "preserve" for the well-to-do and the truly wealthy. Sales numbers over $300,000 have increased 80 percent compared to last year.

LAND TRANSACTIONS: IMPRESSIVE During the year there were 461 land sales; 350 on South Whidbey (including the Coupeville area). Sales on South Whidbey totaled - $34.7 mil, almost 74% of total land sales dollars. On North Whidbey there were 111 sales, totaling $12.4 mil. Sales for land totaled $47,136,600. This is the third year in which land sales have strengthened dramatically. On North Whidbey the average transaction price, including both lots and acreages, is $111,711, skewed by a few very large sales. Lots sold, on average, for $68,632. On South Whidbey the "unintended consequence" of GMA is to further push the south end toward becoming a "rich enclave of the privileged". On South Whidbey the average land sale is almost $106,735; and 59% of the transactions were acreages.

DEMOCRACY: A LEGACY. We Americans are so troubling to the people of other nations. Our fascination with our republican form of democracy, and the near-religious zeal with which we promote 'democracy' to other nations is annoying to friend and foe alike. James Madison, writing in The Federalist No. 51, observed, 'In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself'. Our ascendancy as a nation state is largely why the 20th century will be called the 'Democratic Century.'

In 1900 monarchies and empires dominated the nation states of the world. An insular America actively ignored emperors and kings, provided they stayed out of the affairs of the 'New World'. Our tenuous experiments with 'empire', because of the Spanish-American War, continue to haunt us to this day: think Cuba, Puerto Rico and the Philippines. Only 25 states (with a mere 12.4% of the world's population) could have reasonably been described as democracies in 1900. By 1950, America had 'once again' made the world 'safe for Democracy' ' finally ending in 1945 the war that actually began in 1914. With the exception of the U.S., the world was exhausted. European Colonialism was in collapse; only our political ineptitude let the Soviet Union smother the Baltic states and Eastern Europe, including the eastern-third of Germany. Despite the manifest totalitarian communist takeovers in Asia, America remained politically committed to expanding democracy with almost religious zeal, as 42 nation states (42.9% of the world's population) lived under at least limited democratic practices. As the last decade of the century ended, the political skill of Ronald Reagan engineered the economic bankruptcy of the already politically exhausted 'Evil Empire.' So, by 2000, electoral democracies dominated for the first time in world history. American energy, money and leadership caused the world to adopt universal suffrage and the 'rule of law' in governance. By 2000 democracies outnumbered the other nation states - 120 of the total 191; representing 62.5% of the world's population. This profusion of 'democratic' states was more than matched by the proliferation of nations: 55 in 1900, 83 in 1950 and 191 in 2000. China is a special case. She has already 'crossed the Rubicon' and can no longer have the political will to enforce totalitarian communism. The other communist states are primarily an annoyance. Only one major problem stifles democratic governance ' the rise of fundamental Islam in control of 26 'non-democratic' nation states with 638.9 mil. people - 10% of the world's population*. It is not accidental that their fanaticism is much focused on the U.S. as a 'great Satan', prelude to the infamy of '911.' The ease with which the Taliban were dispatched should not be confused with the ease with which Afghanistan will adopt democracy ' but they have made a good start. America is now zealously engaged in introducing democracy to Iraq. Together, these two states govern 52.9 mil. people. It may work. If it does the noise of dominoes falling will be deafening!

We do not know whether 'democracy' is the final form of government for a world approaching 200 nation states. Possibly not, for democracy implies first and foremost equality, not necessarily followed by responsibility! In a relative sense John Adams was probably correct in observing, 'Democracy never lasts long. It soon wastes, exhausts, and murders itself.' If G. W. Bush is able to pull off elections in Iraq as he has been apparently successful at doing so in Afghanistan, he will likely be remembered in history as our most 'mis-underestimated' President.

*This figure is based on our inclusion of countries with more than 50% Muslim populations and non-democratic governments: Afghanistan, Algeria, Azerbaijan, Bahrain, Brunei, Burkina Faso, Egypt, Eritrea, Ethiopia, Iran, Iraq, Kazakhstan, Kuwait, Maldives, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, Turkmenistan, United Arab Emirates and Uzbekistan

ECONOMIC PREDICTIONS FOR FIRST-HALF OF 2005. 2004 began with lumpy and conflicting economic data; though it was clear that we were close to recovering fully from the economic impact of '911'. Despite the third-quarter impact of four major hurricanes, the year closed on a strong note. The impact of '911' on our airlines, hospitality and travel industries is gone; finally fully recovered; now gone on to record levels. Airlines have all-time passenger traffic (though the impact of high energy costs remains a very real threat ' especially to two of our major carriers: Delta and United). Through fresh entrepreneural energy, re-thinking and 'creative destruction', Southwest Airlines has become the nation's biggest domestic carrier; while total domestic passenger bookings rose from 439.6 mil. in 2003, to more than 631 mil. this year ' a whooping 43.6% increase! The travel industry is once again booming. Cruise ship sales are 12.5% ahead of even last year's decent bookings and 'passenger days' (time aboard a cruise) increased 9% in 2004. Disney's Resorts set all-time theme park and lodging records. Our national economy has turned around with a vengeance. Investor confidence is rising, even 2.3 mil. jobs have been restored in the past 15 months. Still these are mainly the traditional jobs easily measured by government ' manufacturing jobs, agricultural jobs and urban wage-earner jobs. Past 'union' employment is gone and will not return ' outsourced, overseas ' victim of change into the 21st-century global economy and the "Third Wave." Since 1999 more jobs have actually been created in the entrepreneurial areas of self-employment and small business than were lost to the 'unemployment' counted by government. The economic phenomenon of our century is the flood of self-employment. The product of these new jobs is the engine driving our incredible GDP. New employment growth is about three-quarters lower-paying service employment and about a quarter extremely high-paying technology employment (open only to those with technical educational and previous employment experience). There are no more "jawbs"! Our basic economy produces more and more with less and less employment, while our specialized economy requires labor intensity ranging from minimum wage labor to technology workers producing "tens of millions" in added value to the national and regional economies.

During 2004 economic growth continued at twice the rate of inflation - about 4% for the year. We believe that when final year-end data are available in March or April, our GDP will have grown 4.2% to almost reach $12 tril. Keep in mind that given the scale of our huge economy even modest growth represents almost $450 bil., annually. Given world uncertainties, this is an excellent record. By way of contrast the rest of the world is foundering, Japan and the EU especially, their circumstances made worse for them by the weakening U.S. dollar and high oil costs which effect our economy much less than other developed nations. Europe is fully in cultural decline - victim of its proud 32-hour workweek with 6-week vacations, poor productivity and runaway public expenditures. Meanwhile, our consumer confidence is uneven though actual consumption remains strong, driven partly by very low interest rates. The housing market continues to be strong, now representing 15% of GDP, however, it is unlikely that 2005 will match 2004's record of 8.1 mil. sales. New construction is headed for a significant slowdown simply because recent rapidly rising prices, absent rising incomes, means that qualified buyers are falling along the wayside. Also, beyond another year at most, very low interest rates will not continue to stimulate as the marketplace for homes and automobiles becomes saturated. Federal tax cuts provide further stimulus, but the large federal government expenditures for defense and anti-terror activities presage rising government expenses, whether from an expanding economy or deficit financing. Also on the strong side, productivity is improving impressively, agriculture is strong, and corporate profits are rising. Stocks have recently exploded but will continue to be volatile, although companies with real earnings should continue to see impressive stock price rises. The bond market is very strong and should continue to be strong as oil prices stabilize and decline and the rest of the world looks for a safe haven for their dollars. Even "whiney" Europe has larger bond investments in the U.S. than it has investment in itself! As for stocks without earning capability, they will continue to have