I’ve got some things to catch up on this weekend, so I’ll be in and out. I couldn’t help but think, though, that this video, produced by a Las Vegas realtor, deserved a rebuttal:
Anyone care to lead off?
Mish's Global Economic Analysis
UK House Bubble
Bubble Meter
Northern Virginia Housing Bubble Fallout
Ohio Fraudclosure
Breaking News Relevant Articles© Copyright 2012 Housing Doom | Copyright© 2011, AuthentiCraft, Inc.
Wow.
I can’t vouch for the accuracy (or inaccuracy) of his charts and stats. But his conclusions are at best guesswork, at worst fantasy.
He doesn’t waste much time getting to that old chestnut about 6,000 people a month moving to Las Vegas, and how the new hotels are going to create X number of jobs.
He doesn’t seem to understand — or doesn’t want to admit to potential customers — that it’s all about affordability. They can hire all the maids and blackjack dealers they want, but unless than can get magic-wand financing, they’re either going to be renters or they’ll be living 10 to a home, as many do now.
But with stated income out the window now and 2/28 ARMs heading for extinction, where are all of these 6,000 people a month going to get financing for a $200,000 home, let alone a $299,000 median-priced home? Oh, that’s right — they’re not going to get financing.
I love how he says that inventory is leveling off in Sept. and Oct., which means that the bottom might be coming soon, with an upturn as early as Q1 2008.
If he had bothered to move his eyes to the left side of the chart — that is, 2006 — he would have seen inventory leveling out last year in Q4, too. Except it was leveling out about 20 percent lower than this year. And just because inventory “leveled off” (seasonally) in 2006, it didn’t mean prices bottomed. They kept right on falling, right through the REIC’s sacred post-Super Bowl boom (oops, sorry, maybe in 2011) and right on through to the present.
At least this guy redeems himself somewhat by admitting that 60 percent of the houses on the market in Vegas are overpriced for the comps.
But, hey, not to worry, because the other 40 percent are trying to set new, improved comps with each sale (that is, lower ones).
I could go on all day, but I’ll leave some fat pitches for someone else.
– The Judge
The reporter is mathematically challenged.
The median price graph is a fantasy. He built a trend line based on 2.5 years, from 2001 to mid-2003. During this time Nevada’s median home price increased at annualized rate of 7.6%. But since 1980, Nevada’s median home price has increased at an annual rate of just 3.6%. And since 1990 the annual increase has been just 3.8%.
A real long-term trend line shows NV housing to be overpriced by about 85%, based on OFHEO’s 2Q07 HPI data. The NV HPI is about 405, and the long-term trend line is about 215.
Prices will revert to the mean only after plunging well below the trend line for several quarters. And that will take a long, long time. Prices won’t bottom until 2009 or 2010.
As for the strong economy, that is debatable. Vegas is adding a lot of jobs, no doubt, but they are service jobs that pay poorly. The local economy has little to offer skilled and educated workers.
Judge I think you did a great job of covering the spin. I did notice that prices seemed to be tracking along with the number of sub-prime loans from 2004 and now that they have dryed up prices are dropping off a cliff in 2007. At least for the ones that sell. And how can a couple moving to Vegas for all of the new jobs going to be able to afford a home on 12 or 15 dollars an hour even at the bottom end without a toxic loan? I would also have to question his chart on projected appreciation at 5% per year.
Richinaz-
Part of the trouble with the jobs and immigration numbers has been a long standing “build it and they will come” mentality in LV.
A lot of the workers in LV were illegal, and to a large extent, didn’t show up in the stats. As residential construction slowed, many of them have left. Additionally, tourism has been slowing, tax receipts have been slowing- all of this as more capacity in hotels and casinos come on line.
Whatever stats may be reported for tourism, I think a better indicator is the specials at the big hotels. This month there are 15 nights you can stay at the Monte Carlo for less than $100- there are six nights you can stay for $60! I doubt very much they would offer those prices if they were real busy. There are also other properties that I used to never see big discounts on, but I see all the time now.
People don’t always move to LV no matter what, or spend money no matter what. Supply, demand and other economic factors apply here just like anywhere else.
I’ve actually stopped going to Vegas. I went every year for 20 years, usually multiple times per year, for Comdex, DefCon, CES, and just fun visits, spending thousands of dollars a year there. But I’ve been robbed twice in the last few years while visiting (and not just at the tables – once by pickpocket and once by having my hotel room burglarized at a loss of thousands), and I think the crime situation there is getting out of control. Soooo, I’m not going anymore. After chatting with other people about it, I don’t think I’m the only one of this mind or experience either.
Oh, and BTW, getting a little far OT, but never stay at the 4 Queens – I’m certain it was an inside job and the hotel was totally non-responsive to a serious crime committed against their guests on their premises.
The thing that really clinched it for me was that graph with the 5% appreciation on it. I can buy the argument that home prices should appreciate at a small percentage and the actual price should fall to where that is.
BUT THE MATH IS OBVIOUSLY WRONG!
1) 5% a year is a 47% increase 2001-2009. That graph shows the price doubling in that period!
2) percentage increases over years dont look like straight lines as that graph does, they look like parabolic curves.
This guy cant even plot 5% apprecition on a grap correctly, possibly the least subective and easiest to accomplish part of his whole analysis.
If his claim that prices should match five percent appreciation is correct then the line should be about 80k dollars below current prices right now. (assuming the other data points on that graph are correct which seems unlikely)
I live in Las Vegas. People here are delusional. They still think their homes are worth 400-500k when they’re only worth 300-400k.
And by next year they’ll only be worth 200-300k.
Let’s face it, as the rest of the economy plunges into the abyss across the country as banks start to fail and credit dries up, alot less people will be spending their discretionary dollars in las vegas, because there won’t be any discretionary income on their balance sheets. All these hotels have “plans” to be built. Very few will follow thru and actually build them, or take huge losses for the first 5 years if they do. It will be worse here in 2008-10 than October 2001. Casinos will struggle, home values will plummet and alot of people will just walk away from their debts. Vegas is on a train wreck. The previous posters are correct in pointing out that the wages here don’t support the housing prices. That has always been a problem in vegas, even when the prices were on their normal 4% trendline.
{wages here don’t support the housing prices}
That is exactly the case here in Hawaii as well…probably to a larger extent where median SFH prices are still in the mid-$600Ks.
I think most of us here with college degree positions could easily find jobs on the mainland that pay 20% (starting pay) more and buy comparable homes that cost 30-50% less…they call it the paradise tax.
Vegas hasn’t been around long enough. The current Vegas was built post 1930s, so there is ZERO data regarding how a gambling / entertainment mecca with limited natural resources will fair during a significant and long term contraction of capital.
Should be interesting to watch…
Amazing what you can do with a Mac and a blue screen!
It looks like the video was taken down. I guess I’ll need to start backing up videos before I post them. Not everyone appreciates the exposure they get here on Doom, I guess. : )
Is this the video:
http://www.youtube.com/watch?v=kx13gOj3azE
Tyrone-
You got it! Thank you- I updated the video in the post.
I have to echo the sentiment expressed in previous posts. The fundamentals are extremely out of wack. The average income does not support the average housing price. The main reason for the price spikes was the shift (at the time) of investment dollars from the stock market to real estate. Now there is the opposite shift (dollars moving away from real estate, lending, development, etc.). Most of the price increases were influenced by speculation and idiot Californians that thought housing at $300,000 is a bargain when it truly is not.
The belief that these new casinos are going to be the next boom is ridiculous. Many older casinos closed to make way for the new. Many of these workers will be the first in line for the new jobs, forget new people moving to the area. Also, these jobs are low paying service jobs which still do not justify the housing prices.
Also, a lot of the new casinos are pushing residences on the property. Essentially these residences are condos starting at $700,000 for the bottom floors. Who has that much to spend on a vacation property? Keep in mind these residences are being marketed to the average consumer and not the high end consumer. Since hotel rooms at the property are too expensive (compared to the previous old casinos room rates), and there are no condo residence buyers (which may have the option of adding their condo to the hotel room pool), there are going to be a lot of empty towers.
The other group moving to the area are retirees on fixed incomes. If we are to assume that we are going back to “realistic” lending practices, who would write huge loans to those that do not earn enough or might not even live long enough?
On the “upside” is should be noted that a lot of foreign capital is coming into Las Vegas — both tourist dollars and second homes (a sale closed last week on a condo for 10.5 million at Panorama Towers). It’s easy to get caught up in doom — just as easy as it was with the euphoria! Affordability is an issue and perhaps there will be multiple families in some homes in some areas — (the densist area for people living in sfrs is in Anaheim, California), but this could boost the bottom. More importantly, the additional 40,000 service workers may not qualify for homes, BUT all the support for them will bring professionals who will qualify (doctors, dentists, accountants — even lawers). It just might be a good time to find some really good deals if one can hold on for two years or so…
Las Vegas SFR median is down to $275,000 as of today’s GLVAR report. That’s a $40,000 drop from last year’s high of $315,000. Ouch.
jan – did you just read a “Las Vegas is great” feel good brochure or something, you know the one that says 10,000 are moving there every month and quotes every other boom statistic? Go try living there for a year and come back with a more qualified opinion.
Joe -
Not only DO I live there (10 years) but am in the hard money lending business. We lend on equity (not SFR – only land and commercial properties). Our business is down and foreclosures up – but that is irrelivant to longer term trends.
Your comments did not reply to the FACTS (not opinions) stated. Namely,
1. Foreign capital is being invested (largely due to the weakening dollar vis a vie tourists, but also because of pure investment opportunity and future expectations — for example, Dubai International invested 4.2 BILLION dollars just three (3) months ago to purchase 1/2 of City Center going up on the strip….)
2. Service employees create supporting employment centers that yield qualified persons to purchase homes.
I do not have to read a feel good brochure to re-state facts. Of course there is a downward trend going on – but to dismiss mitigating factors out of hand with bumper sticker slogans of endless doom is not productive either.
Ok, money wiz. But I have to call out your statement: “the additional 40,000 service workers may not qualify for homes, BUT all the support for them will bring professionals who will qualify”. Geez, there are doctors and dentists in every city I’ve been in, so should I just invest in RE everywhere cause doctors are everywhere? Or are the doctors in Las Vegas super doctors who will buy ten houses to “boost the bottom”? For every doctor in Las Vegas, there are hundreds of coked out lowlife blackjack dealers, service workers, and illegal aliens. And WTF is a “lawer”?
A “Lawer” is a “typo”:typo
n : a mistake in printed matter resulting from mechanical failures of some kind [syn: misprint, erratum, typographical error, literal error, literal].
Let me know if you have anything else I can help you with -
Jan-
It’s unfortunate that we aren’t set up to allow people to edit their comments. I’ve had a typo or two myself- but fortunately I at least can make those disappear.