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The insanity is that we continue to ride through a stretch of record or near record demand with stable or falllng price. We have an insatiable demand and still prices hold. If you want to find the weird in this sceanario figure out how prices can be held stable in the face of such demand. It appears as if price, as a limiting mechanism, has been removed...maybe that is what is happening.
I'm not beating you up here as this is a sincere question. If you don't understand what is going on, why are we debating if prices will fall or rise??? Are you going off a gut feel?? I'll give you a hint along with an analogy. Your bubble is deflating. Your below rebuild statement is not true; it's happened for years in various areas all over the country. Remember, as a stock price goes down, some people are still buying assuming it's a good buy even after it continues to fall and the volume increases.
Last edited by MN-Born-n-Raised; 11-01-2009 at 06:12 AM..
I am sure there is some pressure for the credit...but I doubt it is the big driver...below the median it is running 2:1 conventional and cash versus FHA. That indicates a market with a very large investor population...they don't get the credit. Also shows how weird this market is. That below median is normally very high in FHA and first time buyers. Not now.
Note again that Las Vegas is likely not following the national triend. There are very, very few places in most of the country selling below replacement costs.
70% of what is upside down? 22% of who is a month behind? These numbers don't mean anything unless precisely defined. I do not believe 70% of Las Vegas homes are upside down. Cite a source for such numbers. Include the details...how measured, when, how estimated etc.
I gave you the links to the 22% behind on the payments (WSJ). You see, people upside down see others stop paying, not get kicked out, save for months of 'free" rent, get loans modified, and not get chased down to re-pay. With high unemployment and low tips, it's easy to give up especially the longer the economy stinks. By the way, the WSJ author answers his emails if you have questions on his math. He promptly answered three of my emails.
So if you live in a town that had up to 60% drop in home values, you might be able to conclude that some folks are severely underwater.
It states: "Sixty-nine percent of all properties with a mortgage in Las Vegas and the nearby suburb of Paradise are worth less than the amount owed on them, compared with 32 percent nationwide, based on the most recent figures from real estate data company First American CoreLogic Inc. in Santa Ana, California. "
And the current loan modifications nationally that default is at 50%. Hopefully you are not going to want the specific Vegas numbers because you think the Vegas modifications fail less. In other words, all of those modified homes will be coming on line again. Hopefully I'm not out on a limb and think that the magnitude of how far upside down you correlates to the default rate. So in MN, we are down 20-30% off of peak (depending on the neighborhood) In Vegas, you are down over 50%-60%.
Are things getting better??? Well, in Q3 2009, Las Vegas led the nation with 5.13 percent of households receiving a foreclosure filing, almost seven times the national average. Filings rose 54 percent from a year earlier, (source RealtyTrac).
Last point. There are a lot of areas that sell existing below rebuild costs. Further more, I can contract a home in Phoenix (brand new build) below some of the foreclosed prices in many Vegas neighborhoods. So since the construction is similar, don't assume you don't have a ways to go yet.
Yea. Things sure have stabilized by pointing to increased prices while thousands of houses have not entered the market place for several reasons.
How do we get that bet started??? Let's pick a charity to give it to when I win. Your choice because it will be your money. I sincerely HOPE I'm wrong but I know better. There is just too much data pointing in the wrong direction.
I'm not beating you up here as this is a sincere question. If you don't understand what is going on, why are we debating if prices will fall or rise??? Are you going off a gut feel?? I'll give you a hint along with an analogy. Your bubble is deflating. Your below rebuild statement is not true; it's happened for years in various areas all over the country. Remember, as a stock price goes down, some people are still buying assuming it's a good buy even after it continues to fall and the volume increases.
In fact REOs are increasing in price. They are also selling at 104% of list.
That makes no sense.
The bubble done busted. Spectactularly. The question is when it starts to recover from a negative level to neutral.
As to below replacement cost I will bite. Show me a major metro area outside of the heavily impacted FL,AZ,CA,NV that has homes less than 10 years old selling in large volume below replacement costs.
In fact REOs are increasing in price. They are also selling at 104% of list.
That makes no sense.
The bubble done busted. Spectactularly. The question is when it starts to recover from a negative level to neutral.
As to below replacement cost I will bite. Show me a major metro area outside of the heavily impacted FL,AZ,CA,NV that has homes less than 10 years old selling in large volume below replacement costs.
You never answered; why was the market dropping when sales were so strong?? (I'm trying to see if you understand your market).
So you say the bubble is busted??? If I have a $400K home in Vegas, you are saying that's not going to go down some more??? How about the $500K home; $700K home??? If they will go down, the darn bubble isn't over. Period. And therefore it's not "over".
Re: prices lower than re-build costs. That has been in play since the beginning of time. The reason homes go up in value is the price of land gets more valuable (think sold out ideal areas) or inflation. The house itself depreciates while rebuild costs and land appreciate. Hence, over time, all homes/ land USUALLY appreciates.
Thinking about it another way, why does 99% of everything else you own go down in value over time?? The answer is in the above paragraph and is why MOST homes cost more to rebuild.
Saying that, homes prices to build has plummeted. Land, profit margins, labor, and materials have dropped. So I no longer care if this or that property dropped in 1/2. Re-build costs also tanked.
Yes. There are areas in are well below rebuild costs in nearly every town. Most of which were only desirable because of the fact it was all people could afford. Now that everything has come down, the other formally "cheap" stuff has to go well under build costs cause no one wants it. Simple.
Things sure have stabilized by pointing to increased prices while thousands of houses have not entered the market place for several reasons.
How do we get that bet started??? Let's pick a charity to give it to when I win. Your choice because it will be your money. I sincerely HOPE I'm wrong but I know better. There is just too much data pointing in the wrong direction.
I totally agree with your synopsis regarding the Vegas market. (I like all the data you refereneded as well) I will also join in on this bet. We just need to identfiy the charity and betting criteria and go with it.
Come olecap, put your money out there. Need to get Tony as well to join in.
You never answered; why was the market dropping when sales were so strong?? (I'm trying to see if you understand your market).
I have been of the opinion right along that the entire bubble burst was artificial and driven by the lenders. Not that the bubble had not begun to deflate...it had. But the bust and the behavior to present is driven by lenders who control the price.
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So you say the bubble is busted??? If I have a $400K home in Vegas, you are saying that's not going to go down some more??? How about the $500K home; $700K home??? If they will go down, the darn bubble isn't over. Period. And therefore it's not "over".
Yeah the bubble is done. The bubble deals in averages not the specific. Places like Lake Las Vegas and Tuscany may continue down for a long time yet. The classics do not appear to be at bottom in general though some certainly are. There are 700K homes which are going up. We recently had a client bid on a 375K home which sold for $475K. The MLS indicates a flat price with REOs going slowly up.
There is of course the schools that says more is to come. Than again they have been saying that since the first quarter. The phantom inventory seems to be staying phantom. I see no real possibility of change until well into 2010 and then we see.
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Re: prices lower than re-build costs. That has been in play since the beginning of time. The reason homes go up in value is the price of land gets more valuable (think sold out ideal areas) or inflation. The house itself depreciates while rebuild costs and land appreciate. Hence, over time, all homes/ land USUALLY appreciates.
Depreciation is mostly a legal fiction. We are in the process of selling a rental in the Bronx that has been fully depreciated. It is still worth $525K. The lot is worth $200K. Building costs may move with inflation or at a different rate.
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Thinking about it another way, why does 99% of everything else you own go down in value over time?? The answer is in the above paragraph and is why MOST homes cost more to rebuild.
Untrue. Any number of things can maintain value. The value of a 70s VW bug properly maintained increases. Things with limited lives and wear out modes may drop to zero eventually. But not everything and no particular reason why anything has to. Value comes in many flavors.
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Saying that, homes prices to build has plummeted. Land, profit margins, labor, and materials have dropped. So I no longer care if this or that property dropped in 1/2. Re-build costs also tanked.
Land certainly has dropped though not as much as homes. Building costs has come down but no where near the rate of housing.
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Yes. There are areas in are well below rebuild costs in nearly every town. Most of which were only desirable because of the fact it was all people could afford. Now that everything has come down, the other formally "cheap" stuff has to go well under build costs cause no one wants it. Simple.
You ducked. Cite some instances as you claim they are prevalent. Newish, high volume of sales, below replacement cost not in the obvious impacted metros.
I totally agree with your synopsis regarding the Vegas market. (I like all the data you refereneded as well) I will also join in on this bet. We just need to identfiy the charity and betting criteria and go with it.
Come olecap, put your money out there. Need to get Tony as well to join in.
Uhh what charity...this is to feather the pockets of olecapt...I am ready...
If I may paraphrase what olecapt is saying (and which I agree with) is that the foreclosure crisis is not something that Las Vegas is only just starting to experience. Its something that has already driven prices to very low price levels.
The price drop is already drastic in Las Vegas, far more than other metro areas (with the exception of detroit).
LV SFR and condo prices are 44% and 33% of Jan 06 levels and has currently been trading along a narrow band since April 09.
The question everyone is really trying to answer is whether current prices are already reflective of the existing foreclosure levels or that it is still over-valued by 10-24%.
Additionally, I'd like to highlight 2 factors that have not been considered:
(a) Prices of higher end foreclosed homes may drop but that's still higher than the median prices that has been driven by low-end foreclosures;
(b) Home sales are not like stock sales. It takes time to do a sale/purchase and is very far more illiquid than stocks.
Last edited by Slim10; 11-01-2009 at 07:50 PM..
Reason: Additions
In one of the above WSJ links. It says: "Mark Zandi, chief economist at Moody's Economy.com, predicts that average national home prices will bottom out in next year's third quarter, assuming that employment begins growing again in mid-2010. But prices in some metro areas still have a long way to fall, he believes. Prices in the second quarter of 2010 will be down about 30% from a year earlier in Miami, 27% in Orlando, Fla., 24% in Las Vegasand 23% in Phoenix, Moody's Economy.com forecasts."
I hope like heck that all areas go up in value (I own three homes) but the reality is, people are buying because the market is being manipulated (cheap rates, $8K credits causing "no money down again", and intentionally reduced supply. In reality, the rate of pending foreclosures are increasing even though the posted inventory is being reduced.
I don't think Marz Zandi is that great as an Economist. The reason is that I consider him overly optimistic. With that in mind, his prediction is a bit scary. If he thinks prices will be down 24% and he is usually not negative enough, that is not a good sign.
I'm not sure LV home prices will be down an additional 24% next year, but it doesn't seem as though the local Economy will improve significantly anytime soon. I've listened to Wayne Allyn Root's radio show recently and he has had local small business owners on a lot saying things are really bad. Many of his friends have seen business drop off a lot (his business included) and some of his favorite stores (eateries, salon, etc) are now closed.
Las vegas median home price in Jun 09 was $140k. To drop 24% means median home prices will have to go down to $106k by Apr-Jun 2010.
Detroit's current median home price is $119.9k. That means prices have to drop to detroit's level and then another 11% to hit $106k.
Unlikely to happen.
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I'll give you a hint along with an analogy. Your bubble is deflating. Your below rebuild statement is not true; it's happened for years in various areas all over the country. Remember, as a stock price goes down, some people are still buying assuming it's a good buy even after it continues to fall and the volume increases.
I sincerely HOPE I'm wrong but I know better. There is just too much data pointing in the wrong direction.
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