Welcome National Indoor RV Centers family of customers and friends to RVs, the Economy and You update number two part three. In part three I want to share my thoughts and question the logic of the following three statements I’m repeatedly getting asked and keep reading about on the forums one I’m going to wait for the price of fuel to come down before purchasing a coach two I’m going to wait for the price of coaches to come down before buying and three I’m going to wait and buy a used coach for cheap when all these COVID buyers discover they’ve made a mistake and want to get out. Well personally I don’t believe oil will drop below $100 per barrel anytime soon. Yes oil spiked reaching an eight-year high and everyone’s pointing to Russia’s invasion of Ukraine. It makes sense. Russia is the world’s third largest producer of oil and the top exporter to global markets.
Russia produced 12% of the world’s oil last year with 60% of its oil going to Europe. Now the west is refusing to do business with Russia which crimps supply and hence the recent spike. But if we zoom out we see prices have been on a choppy upward march since april of 2020. As I previously mentioned I believe $100-plus oil is here to stay for a while and it’s not just because of Russia. The oil industry runs in cycles. When oil prices rise production increases supply exceeds demand and then prices fall. Rinse and repeat. As the saying goes the cure for high prices is high prices. The problem is production hasn’t increased much this time around. One of the best indicators of oil production is the Baker Hughes International Rig Count which measures the number of active drilling rigs around the world. As you can see from this chart the rig count is currently hovering around 840.
That’s 38% lower than the 10-year peak of 1 350. The last time we saw $100 per barrel it lasted 41 months from march of 2011 to august of 2014 and the mood was drill baby drill. Today the mood is different. Everyone’s looking to green energy and the oil producers have no plans to ramp up production. Their spending plans changed after the last bear market in oil. Instead of plowing money into exploration and production. They’re returning cash back to their shareholders through dividends and share repurchases. BP Exxon and Chevron plan to spend between $38 billion and $41 billion in share buybacks just this year alone that’s one whale of a lot of money not going into exploration and production this year. Now turning to demand. I realize there are some who say we won’t even need oil in the future. But that future isn’t coming tomorrow.
By way of full disclosure I live full-time in and drive a coach to get seven miles per gallon of diesel in an attempt to balance out my own carbon footprint I also drive a Tesla. So I am a fan and a consumer of both a diesel-powered coach and an electric vehicle. And I love both of them equally. But realistically oil’s not going away in my lifetime. There are currently 1.8 Million electric vehicles registered in the united states today versus 289 million registered cars. Electric vehicles make up a little over one-half of 1% of all the passenger vehicles on the road today. Even if electric vehicles grew to 5% of the passenger market which will happen someday it still won’t dampen oil demand by much. And remember we haven’t even mentioned the oil consumption for commercial trucking busing airlines and so on. I don’t believe coach owners will stop using or purchasing coaches because of fuel prices.
I believe they will once again do what I did as a coach owner and what I observed our customers did. The last time fuel prices were high. They will still take just as many trips. But those trips will be in state or to a neighboring state instead of cross the country trips they enjoyed when fuel prices were low. Instead of traveling to and staying in several resorts or parks on a trip they will simply stay longer and visit fewer resorts on the same trip. Or they will simply hedge the cost of their fuel by investing in oil stocks and let their stock gains more than offset the increase in the cost of fuel. What they didn’t do and what I don’t intend to do is to stop living the lifestyle or put off purchasing a coach because of fuel prices. Time will tell if history repeats itself again this time around or not I guess.
Turning to the question of waiting for coach prices to come back down. Now here I do have a couple of thoughts and the first one is. I don’t believe prices of new coaches will come down. In fact I believe the price of new coaches will continue to go up. Coach manufacturers are really what I term to be parts assemblers and I just don’t see the cost of all the parts components and raw materials they use to assemble a coach coming down in price. First there is an awful lot of labor involved to manufacture every part and component used in the assembly of a coach. And then more labor to design engineer and assemble the coach. For the reasons I previously discussed in my RVs, the Economy and You update number two part two video I can only see the cost of labor going up and there’s not a swinging thing anyone can do about it.
The problem with labor shortages was baked in a long time ago when our birth rates and immigration rates started declining. Basically when we stopped replacing ourselves. Now from tires to plastics to shipping there is a lot of fuel and petroleum-based components and materials used in the assembly of a coach and. For the reasons I just discussed a moment ago I don’t see the cost of oil coming down anytime soon. Bottom line in absolute dollars I don’t see the price of new coaches coming down. Rather I see the rate of price increases the rate of inflation if you will slowing down as the supply chain sorts itself out production rises to meet demand and higher prices tamp down demand. But I really don’t believe I’m going to see lower invoices on brand new dutch stars going forward. Now for my second thought.
Whether you are still working or you’re retired living off of your portfolio coaches are more affordable today than they were five years ago. Please before you scoff and stop watching allow me to explain why. Let’s look at this. In relative terms and not absolute terms but december 31st 2016 the median household income was $59,039 the average sales price of a new home was $360,900 and MSRP on a new Dutch Star was $445,397. Now let’s take a look at these same data points at december 31st 2021 or just. Five years later the U.S. Department of Housing and Urban Development estimates the median household income was $79,900 in 2021. The average sales price of a new home was $453,700 and MSRP on a new Dutch Star was $556,933. In relative terms a new home on december 31 2016 cost 6.11 Times the median household income and the Dutch Star’s MSRP was 7.54 Times the median household income.
By december 31st 2021 a new home cost 5.68 Times the median household income and the Dutch Star’s MSRP was 6.97 Times the median household income. How can this be? Well the sales price of new homes went up 26% the MSRP of Dutch Star went up 25% and the median household income went up 35.3%. Notwithstanding all the price increases stuff is more affordable today than it was five years ago because wages or as an employer labor is rising faster than either goods or services right now. How much of this increase in median household income is due to the government’s monetary policies and how much is due to the shortages in labor those policies created? Remains to be seen. But one thing is for sure with a shrinking pool of labor going forward wages are going to continue to go up. It would be irresponsible of me not to point out the obvious.
Which is no one pays MSRP for a new coach ever. I trust and hope all of you know that I am restricted and only permitted to discuss msrps and not disclose invoice amounts. But the manufacturer’s markup from invoice to MSRP hasn’t changed over those five years so the rate of inflation for a Dutch Star is accurate. We’re still talking apples to apples when compared to the rate of inflation for houses and household incomes. Now not everyone is still working many of you are retired so this comparison of prices to household incomes is irrelevant to you. So let’s take a look at housing and coach prices relative to your investment portfolios. At december 31st 2016 the average sales price of a new home was still 360 900 as previously mentioned and MSRP on a new Dutch Star was still $445,397 and the S&P 500 closed at two thousand two hundred and thirty eight point eight three.
Five years later on december 31st 2021 the average sales price of a new home is still $453,700 the MSRP on a new Dutch Star still $556,933 but the S&P 500 closed at four thousand seven hundred and sixty six point one eight. Again. In relative terms a new home on december thirty first two thousand sixteen cost 161.2 Times the closing price of the S&P 500 and the Dutch Star’s MSRP was 198.94 Times the s p’s 500. By december 31st 2021 a new home costs 95.19 Times the closing price of the S&P 500 and the Dutch Star’s MSRP is now down to 116.85 Times the S&P 500. So yes coaches have become even more affordable for those who are retired and living off their investment portfolios than those of us who are still working. Again no big surprise here. As I mentioned in my last video quantitative easing did nothing for the bottom 65% of americans from 2008 to today.
Quantitative easing has been a massive stimulus package to assets in general and the stock market specifically. Just as a point of interest the S&P 500 would have to drop to 2,799 or a 41% decline from december 31st 2021’s closing price of 4,766 before coaches would be as affordable today as they were. On december 31st 2016. Now moving on to addressing our last point which is I’m going to wait and buy a used coach for cheap when all these COVID buyers discover they’ve made a mistake and want to get out. Well it’s been two years since the pandemic hit and we’ve not seen any of these COVID buyers regretting the RV lifestyle. Nor do I think we will see them for two reasons. First. As I pointed out in my video rvs the economy new update from june of last year.
Most of the demand for new coaches was created by a lack of supply for two months the manufacturers were shut down and then when they did reopen they were hit with supply chain shortages and rolling labor shortages due to quarantines. The vast majority of buyers for new coaches were already coach owners or have been planning and saving to live the lifestyle when they retired. My point new coach sales went to very few COVID buyers they went to buyers who were already in the lifestyle or have planned for years to be in the lifestyle and those folks aren’t regretting their decisions. Those coaches haven’t and in my opinion are not going to be regurgitated back into the market. The notion of being able to purchase a late model slightly used coach for a steal hasn’t and probably isn’t going to pan out.
My second reason is the COVID buyers who did purchase their first coach because of the pandemic did so in a used coach. There were five times more used coaches on the market when the pandemic hit than there were new coaches. And the ratio hasn’t reversed there are still more used coaches on the market than new. As I pointed out in my video last summer the value of used coaches had skyrocketed when compared to new coach prices. Existing coach owners recognized the arbitrage opportunity. And upgraded because they already had a coach to upgrade from. They were able to take advantage of the high used coach sales price on their current coach and purchase a brand new one for cheap. On the other hand COVID buyers purchased used coaches at inflated prices relative to new coaches and a much higher percentage of used coach buyers finance their purchases than do new coach buyers.
My point here is I’m still not seeing the regret among COVID buyers every bargain hunter out there is hoping to see. And if there is regret among some. Unfortunately they’re trapped. After a two-year run book values finally declined in the most recent book change which means these yet to be seen COVID buyers who are regretting their decisions are now under water on their coaches and will have to write big checks to the bank in order to get out from under those coaches. For those few who may be regretting their decision I suspect they will find it financially more palatable to just keep making their monthly payments and learning how to enjoy living the lifestyle versus writing a big check they probably don’t have or they wouldn’t have financed to begin with. I would like to close out this series of three videos with some personal thoughts. No data no numbers nothing to back up what I’m saying just my feelings.
I feel the Fed’s cheap money policies have essentially created an environment which financializes everything. It encourages companies to buy their competitors instead of innovating and delivering better products at lower prices. I personally feel that’s unfortunate and not how I would like to see a free economy work. And lastly. I hear almost on a daily basis comments along the lines of I’ve never seen a trailer hitch on a coffin or I’ve never seen a Brink’s truck in a funeral procession. But for me I’ve lived the RVing lifestyle now for 37 years and for two different reasons. When the kids were young I loved all the time we spent together in the coach. I loved having them captive as we drove down the road and thankfully cell phones didn’t exist for them. We were in our own little world far away from their friends and from my business and every night in the coach we were somewhere in our beautiful country.
And now I have those memories to treasure forever. As I look back over my life I’m so glad I spent both the money and the time to make those memories because I don’t get a do-over with my children. Now as an empty nester I’ve been full timing since 2013 for a different reason. I believe money and power reveal. They often unmask a person sometimes we like what is revealed and many times we don’t. Throughout my career I’ve spent a fair amount of time around wealthy people and I haven’t observed an extra dose of happiness in them. Money solves money problems but it doesn’t make people love you our actions do. And that’s why I love the RVing lifestyle. There simply isn’t a nicer more loving community of people out there than our viewers and they truly show it through their actions every day.
I want to thank all of you for taking the time out of your lives to listen to my thoughts. I hope you come away from these three videos feeling as I do which is whether change occurs slowly in our lives or if it’s heaped upon us suddenly the sky isn’t falling for most of us. We are financially better off in our lives today after the pandemic than we were before the pandemic. I also hope these three videos will prompt you to look at the world around us. In relative terms and not in absolutes. I wish you all the best and thank you for watching.