This video is pretty good- and Linda Reinberger, former GLVAR president is actually making more sense than usual:
I have to disagree with her on the rental market though. Rentals listed on the MLS are up 6% over last year, and up 43% since the GLVAR started tracking these figures in October 2005. "Just rent it out" can be easier advice to give than to follow.
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Twist,
I’ve been renting in vegas for 2 years. I’ve watched the market value drop on the house I’m renting from $390k in Aug 2006 to $285k now. The owners owners took out a second and owe $350k. I want to buy the place but the owners are going to have to cash out their 401k to sell it. Not pretty.
I have a hard time with this whole idea of even buying a house in Las Vegas.
We have a serious natural resource problem here. It’s called WATER.
I still haven’t found a bank that will guarantee that public water will be available for the term of my mortgage. Caveat Emptor.
…..oh, and I always enjoy it when you post about Las Vegas. Thanks.
I probably should post some info about what I see going on in Las Vegas. There is ALOT of pent up buyer activity in the $190k to $250k range. Houses going for around $225k are experiencing bidding wars. It seems that the psychological mania that existed 3 years ago is waking from hibernation. One person I know that is trying to buy is on his eleventh house offer. He keeps getting outbid, or the REO banks don’t respond and are holding out for better offers. Most of these houses are undesirable, leaving the buyers with few options to pick from. So bidding wars are understandable when a nice foreclosure comes along.
Conversely, I am not seeing barely any activity above the $250k range. The average income in Las Vegas is $46,000. With banks tightening lending standards, alot of people can’t get approved to bankrupt themselves.
With my house losing $32k in 90 days, I can’t see how even buying a foreclosure in this market is a wise financial decision. New buyers are upside down (again).
It doesn’t appear that people have learned anything.
I think that we are in for a prolonged depression. Chrysler is selling trucks for 40% off list price. Looks like classic deflation to me.
Regarding the video, what I don’t agree with the realtwhore saying is that the market will turn around and there will be a housing shortage in 2 years. Bullshiza. Once we hit bottom, we will stay there for many, many years. This is a recession without a recovery.
Interest rates are going to hit the moon next year. It looks like the 70′s all over again.
Leggo.
I don’t agree that we will go back to the interst rates we saw years ago, simply due to 1)current credit standards 2)cost of living(food, gas,etc) and 3)the medium price of homes…
To raise interest rates to double digits as in the past will simply kill this economy..remember that although home prices are dropping by double digits in certain states, not the ENTIRE USA is experiencing the same percentage drop, which means prices are still high..to raise rates would simply put home buying out of the reach of too many buyers and would again eat at the same monster we are experiencing now..foreclosures, retail buying withdrawals, higher unemployment, and so on…
If that was the case then the rates would already be there…they can’t..
I go agree that if I lived in states like CA,NV,AZ or FL..I WOULD NOT purchase a home right now..even when bottom is reached yes..we will be there for a long time and the increase when they do happen with be 1 to 3% annually..
Mortgagemess-
I go back and forth on where I think interest rates will go. While inflation has accelerated recently, there are those [Mish, for one.] who say that deflation is the greater threat.
The commodities bubble has driven up fuel and food prices, but that bubble has popped. There will be a lag, but I think prices are coming down.
I like to browse through Craigslist and watch what people are selling, and how much they are selling it for. I’ve seen big discounts on boats, ATV, electronics, etc. We know house and auto prices continue to fall, so I think Mish may have a point.
That said, lenders are hurting because risk was not properly priced. Financing for risky investments ought to be a loan shark rates- and a lot of the RE market is risky at the moment. I’d like to see lenders properly price their risk- then get rid of taxpayer backing. That would increase mortgage rates and cause home prices to fall, but lower home prices will be more stable and less risky.
The last issue I see is the politicians- who have to see that Greenspan ended up more loved than Volcker. It’s hard to see, particularly in an election year, interest rates being allowed to skyrocket.
The note written by Leggo is interesting. First, many people in Las Vegas earn unverified tips as the majority of their income. That is one reason housing there crashed so dramatically. These same people took out no doc loans and misrepresented their incomes thinking they would be able to flip their homes. “No money down? I got that.” People that make $46K qualify for homes under $150K. In Las Vegas, like Phoenix, decent homes will soon be under $100K. In Phoenix, they are already hovering around that mark and we have a long way to go in the decline. Commodities have been down for just a few weeks. They could easily go up again. Is $113 a barrel of oil cheap? It’s insane but no longer astronomical. Look for lots of nice homes under $100K, lots of unemployment and a battered retail sector. When a decent pickup truck was selling for $40,000, I knew this thing was gonna blow. Now truck plants are closing down. It’s not only the gas prices. It’s the prices of the vehicles themselves.
“In Las Vegas, like Phoenix, decent homes will soon be under $100K”
Steve – tell me when houses in Las Vegas were under $100k! Low end (but not starter) Houses built in North Las Vegas 15 years ago were not under $100k.
Leggo – $46,000 was the median household income in 2000 (up from $30,000 in 1990). 2007 Median Household Income is approximately $53,000. Historically, the median home price in Las Vegas was 3.5-4x the median household income (120k in 1990, $160-170 in 2000) so historically values will put median house price at around $200k in Las Vegas today. The market will be crazy the next few years, not due to any inherent value in a home, but because of the financing difficulties. As to value, which would you rather, buy a house for $175,000, or rent the same house for $1400 a month? The problem is getting people financing.
As to water, Vegas taps won’t run dry anytime soon. We will suck all the water dry out of the northern valleys and start desalination plants first. But in that regards, Las Vegas is no worse than Phoenix, Los Angeles or even Salt Lake City. Unless the Colorado runs completely dry – Vegas will have water.
I remember Linda Reinberger making a statement about 1/2 yrs. ago in the Las Vegas Review Journal (that was entered on Housingdoom.com). At that time she recommended to her sellers to “just rent the property out” & “wait til the market returns.” These are easy catch phrases aren’t they?
The truth is that they sellers that she shared these phrases with have lost considerable equity. Somewhere along the line an agent has to understand what is happening in the real estate market & tell the client the truth (w/o attachment to the deal.)
It was clear to me 1 1/2 yrs. ago when I read the article in the Review Journal that Linda did not understand where the market was heading or was in denial about it. (like so many others.)
The phrase “just rent it out” is often used when a person doesn’t know what else to say. (especially when the agent took an overpriced listing and it did not sell)
Correction…about 1 1/2 yrs.ago in the Las vegas Review Journal.
My two cents: Mortgage rates will drop to the 2-3% range. But real rates, deflation plus 2% will reach historic highs. Rates will not be able to drop low enough as this deflation monster hits in real. Just look at the buyers gong underwater as soon as the home closes. Builders will offer 0% financing rates ala cars manufacturers to try to support prices. 6MTBill rates will drop below 0.50%
Coffee -
Bits of the customary population that has been buying RMBS are falling away. That would tend to put upward pressure on the cost of a 30-year fixed conforming mortgage — even before you factor in the possible effect of the new “Jumbo conforming” mortgages sliding into the TBA market.
“Foreign cenbanks sold over $5 bln in agency bonds”, by Pedro Nicolaci da Costa, Reuters, August 14, 2008.
“Inflate or die.” – Richard Russell
I don’t see how mortgage rates will drop to 2-3% unless they are government-guaranteed. With the economy the way it has been, there is way too much repayment and inflation risk for a lender to give terms like that on a 10-, 15- or 30-year mortgage. Those are my two Ameros, and I’m sticking with it. (One demerit for a mixed metaphor.)
John – looks like we’re getting closer to Feddie. That Barron’s article is high-quality entertainment.
there is absolutely no way that mortgage rate will drop to 2-3%. even with the FFR @ 1%, rates on a 30yr fixed never dropped below 5% without a buydown.
while FFR rates may go up or down, mortgage rates have to rise bc housing prices have to deflate to affordale levels based upon actual, not stated, income, & rates cannot stay low while compensating for that risk.
IMO
I hate to quote Reaganomics, but remember the “trickle down effect”. With HELOC’s shut off and no home equity left, people aren’t dropping money in Vegas right now like they were in 2004-2006. Tips are down. Occupancy is down, about 7% actually. Two-thirds of Vegas residents are lower-middle class. Think of all the unemployed realtwhores, title companies specialists, mortgage brokers, etc. No, the average median income is (again) $46k.
Regarding the water issue, the curent lake level is 1117 feet. Once the lake drops to 1050 feet, Hoover dam stops power generation.
That’s only 67 more feet!!!. We lost 110 feet from 2000-2008. At our current rate of consumption, that gives us about 4.5 years.
Moreover, one of the intake pipes is partially exposed. They are racing to complete the installation of a third new pipe. That third new pipe only goes down to 865 feet. Once that is exposed, it’s all over for Las Vegas water.
It kills me when people think Vegas won’t run dry. Take it from New Orleans, you can’t beat mother nature.
leggo, I just left lost wages. after 7 1/2 yrs I figured out people were hooked on alcahol, cigarettes, gambling or housing. There is NO water. There is no pride in community outside the gambling industry. Small business chances are horrible unless it feeds off gambling. Bidding wars? In LV? Of course
With inflation at 3.2% rates are about 6.5% on 30 year fixed. Currently, 1 year T.bill adj is 4.25% (2% margin which high).
Inflation at -1.5% which is the deflationary debt implosion (with 300trillion in debt disappearing) would put this same margin at 1.5% mortgage. Adjustable would probably trade the same, 1.5%.
REAL rates would force this spread wider than the current 3.0-3.5%.
We are at the peak of the price push re flating; the collapse of commodities prices I foresee will blow your mind.
Regarding LV water, I’m no expert, but hasn’t there been some talk of partially or completely draining Lake Powell? Not that that would keep up with demand over time, but it might stave off a shorter-term problem.
Coffee and everyone else on the inflation/deflation front: Bill Gross and others are calling for massive federal spending in order to get/keep the economy rolling. I, for one, am very interested in the inflation/deflation debate – can the government singlehandedly stave off deflation by printing and spending tons of money? Granted, somebody has to buy the paper, but there are some countries out there, believe it or not, that have a worse-looking balance sheet than the U.S. in terms of GDP. John?
coffee,
your first paragraph is a comparison.
your second paragraph contains the perception of a causation relationship to determine a conclusion.
at no point have you proven the causation you use to determine your conclusion.
prove that either 1) inflation causes mortgage rates or 2) that the spread is fixed between the 2, & I will admit I was wrong.
otherwise, I still don’t see how you can justify your conclusion about mortgage rates.
igor’s word- flawed
DianaK;
You do not have to believe these, but I do.
Perceived inflation is a big component for demanded rate of return or “the interest rate”.
Inflation is the biggest risk to future returns of capital. Especially on fixed instruments as mortgages, Notes and bonds.
Margins between term instruments are incredibly stable. Changes in these spreads are the first to react when perceived changes occur. (ie: traders quotes of Xbips above 5 year t) This quote is very stable over short periods of time. Time has very little effect on the spreads only changes in perceived RISK.
Only changes in fundamentals will change spreads. Today we say FRE sells money at 113 bips over 5T. The trend has been up by only 60 bips. The up trend does show investor increased perceived risk. Trends in spreads continue in the same direction for very long times.
Going back to the margins to show this future deflationary bust is 2 year notes are at 2.33% while reported presant inflation is upward of 3%. Investors willing to receive a negative return since they price future value of Cash higher tomorrow than today. IE: Deflation
I believe in the trend to continue. The bottom comes in when negativity abounds. Even GDP has NOT gone negative as of this date. Unemployment trends? On a steady smoothed UP slope. This will sooner than later turn GDP negative, watch trends in spreads and margins. They change VERY slowly compared to the instrument.
We are still in good times. The deflationary spiral is the cause of massive US created by the debt. And debt being taken OFF the books.
The spreads between inflation (CPI) and (10YrUSNote) has declined now to about 65bips from 230bibs a year ago. Watch out when this becomes negative. This trend should widen if Inflation is the true risk perceived by large investors.
Look at “interest rate” as your insurance on your capital.
The latest piece of reporting on Vegas housing in todays Review Journal. Local sales on comeback trail…
http://www.lvrj.com/business/27169999.html
Leggo – please provide proof of your income claims. $46,000 appears to be the income in 2000, as demonstrated by the census bureau.
The latest data I could find put the median household income at $53,000. The median family household income was $61,000 and the median married couple family income was $69,000. The mean income averages about $20k-$25k for each.
Leggo – your water analysis is similarly flawed. A comparison to New Orleans is ill advised. It doesn’t shown that New Orleans should be where it is, rather that better techniques and precautions should have occured. The old areas of town survived rather well, because they were built correctly on higher ground.
Also your analysis indicates that we have only 67 more feet until the lake runs dry. This is incorrect. this level is the level at which power can be generated. An issue which should cause us to consider conservation, but not an end of the world scenario.
Elevation 895 is the point at which water cannot be released from the dam without pumps. Note, this isn’t Lake mead running dry as there will still be 2 million acre feet of water at that point. While this is a serious condition, if this happens, only the SNWA will have access to the water. no water going down stream to the Central Arizona Project, no water going to the imperial valley, much less to the colorado river delta (yes you used to be able to boat up the colorado river from mexico!).
I don’t think we can argue that water is a significant issue in the west. But the fact is, that if the situation becomes so dire as to “drain lake mead”, las vegas isn’t going to be the only city substantially affected. If this happens, Phoenix, Tucson, Los Angeles, Riverside, etc are all going to feel the hurt.
Before we see Las Vegas dry up and blow away, we are going to see a lot of other things happen first.
Rates down another 50 bips, margins basically unchanged. Five year now firmly below 3.10% (2.97%) 10 year Treasury steady at a 75 bips.
Next move on Fed Funds looks like down again. Any increase to 2.25% has been cleaned by futures. What does that mean?
Zero chance of 2.25% in 2008. In a US debt deflationary spiral the value of the US$ soars as dollars get harder and harder to find.