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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
Can someone please post annual sales for Las Vegas, going back 20 years? I have trouble accepting that sales numbers are at record levels this year.
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Originally Posted by olecapt
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.
October is up or the same. Which is quite incompatible with normal seasonal trends. We normally drop from September to a low in December/January...does not look like it is going to happen this year. It looks like price is roughly stable. Again hard to believe.
It's being driven by delusional investors....both actual investors, and buyers that believe prices will return to 2006 levels within the next 5 years.
Both factions will be extremely disappointed. The investors because 25% unemployment doesn't support rentals, and the home buyers because their properties won't go up in value.
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.
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.
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.
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.
Land certainly has dropped though not as much as homes. Building costs has come down but no where near the rate of housing.
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.
Where do I start.... You missed about every one of my points with less than ideal examples.
I didn't ask who caused the inevitable burst, (your answer was a little simplistic by the way) I asked why the market price of Vegas homes dropped from 2007, 2008, and 2009 when sales were so strong?? It's rational for lenders to tighten credit when they see massive defaults. Since you had strong sales, it is the reason you cannot understand why it can go down further. You said it yourself. So think harder. How come sales were so strong yet prices dropped?? For the record, it's why prices may very well have to drop again to reach the equilibrium in 2010.
If prices can go down some more (and several folks are still predicting this ESPECIALLY in Vegas), the bubble isn't over. The higher the home price, the longer finger nails they had to hang on. As the recessions drags on, the more and more bigger dollar homes are going to fall. There might be a lot of people that don't have to sell or don't want to sell but a massive amount of wealth has disappeared and lenders will not lend at bubble prices (if they were smart). So while you can point to your one or two examples of bigger dollar homes that are going up, I'm afraid you are in denial. For part of the over market bidding, banks have taken the approach of under pricing them to attract multiple bids. There is nothing better for sales than the sense of urgency. Brilliant. That won't work when the market looks to be going down so they started this approach in the May-June timeline.
As an aggregate, the higher dollar market is next to fall harder and it's already started. So yes. The bubble is still alive and well and especially in Vegas. Of course there are subsections of the market that could be done depreciating and actually appreciating. But then again, those could deflate back to April prices (or slightly lower). It depends on a lot of variables all which are not looking so good. Schiller recently said he is "worried" about a decline in confidence. No kidding. I deal with business owners across the country (who fly into your fine town) and as a rule, they are bleeding money to make payroll. There is higher unemployment to come because businesses will be closing. That's what all the concern is about with commercial real estate as "the next shoe to drop". You are not looking at the whole picture. You are looking at it from a street view point (which has it's merits). There is a reason why people who HAVE jobs are worried.
As to my "duck". You are thinking one dimensional (as in massive losses because of overbuilding). Basically the sand states with a ton of speculation was the bulk of the problem. I never attempted to address that point. What I attempted to explain is nearly EVERY single solitary home (the home and only the home) depreciates because it is less desirable than a brand spanking new one. Hence, new homes generally cost more. Nearly all of us want the new style; the new taller ceilings, the wood flavor of the day, stones versus bricks, etc. If you really think that is a "duck" you understand a lot less than you think by pointing at VW bug examples. Those are the exceptions to the rules. As in 99% of all things you buy go down in value over time as compared to a new one. That was what we were comparing; the cost of new versus existing. New (all things being equal, will always be more. My point was Duh.
The reason homes "appreciate" (land plus physical house) is because of the dirt (location) and the inflation to rebuild. It's why mobile homes and RV's depreciate no matter how well they are built. Why, because you can pick them up and move them. If you were easily able to pick up a home and rotate it with a new one, do you think that old house in the Bronx would be worth squat?? I never attempted to address why the massive build-up deflated. That was artificial higher in the sand states. But as I said, many towns had a little of that. Denver had Aurora, Riverside county's new spec homes in CA, the outskirts zip codes in Sacramento. I've been looking at buying a spot warmer than MN for awhile (I've been looking at all areas before honing in on AZ). All of those areas had one thing in common. They were off the beat-in-path and had creative financing.
I can build a new 2500 sq foot home in Goodyear AZ (open lot in a mostly developed area) for about 5% more than a foreclosures. Those homes went for $375K in 2006. Now I can buy one brand new for $235K and they list for $225K in foreclosure. Granted, they are fairly stripped (yet nice) but it just goes to show how fast things deflated. This would be built on a brand new lot (not a distressed builder model sale). I hear people all the time say "I got a steal. It sold for $XXXK in 2006!" SO WHAT! The cost to build is a lot less than it was in 2006. All of those who are waiting for their house to appreciate will soon learn that a new one can be had for not so much more. We are in for YEARS of hurt and Vegas is the epicenter. After digging deeper, I sure don't feel the sense of urgency.
Of course there are examples of outreaching areas that have high foreclosures and they cannot sell for anything close to re-build in fall of 2009. That is usually because the market doesn't like converted hotel rooms to condo's, crappy locations, or projects that could go under (high rises). But that isn't the bulk of the problem in Vegas.
Last edited by MN-Born-n-Raised; 11-02-2009 at 04:34 AM..
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.
You could be right because the shadow inventory may not be released and the interest rates could remain low until spring with an extension of the $8K give away.
Even if the median price hovers around the current price, it does not mean the housing deflation is over. While I like to be right, this is one topic I hope I am wrong on. But like any market, there are subsections of each (price points, zip codes, high rise or single family homes) that might be done or just starting to fall. Tell the guy who owns a home for $700K that the bubble is over.
I've pointed to several statistics that are not good for Vegas as well as the country. But the Vegas housing market is particularly volatile. May I remind everyone that no one NEEDS to gamble. And if they do, they can get their fix locally now. And as the country falls deeper into a recession (after extracting government spending) we just don't know what is going to happen. One thing is for sure, the seats will be empty at LAS for months to come.
So I'll bet Mark Zanni's model is heavily weighted on the simple fact that the economy is going to stink through the spring time and this small surge in sales will retreat. If by some chance this winter posts strong sales that will be a spectacular thing. I just think that is wishful thinking. I get the feeling that the agents on the ground have skewed vision and ignore the other statistics. I will bet to a larger degree that the homes North of $500K are in much worse shape to fall further in nearly every market including Vegas.
I've bought and sold about 15 homes on water in the late 90's till 2006 and did well. There is no way I would touch an "investment" until I can more clearly see the end. And in Vegas, I can see trouble potentially for years. If you are spending $130K, you only can get hurt a little. But for "expensive" condo's and an expensive single family homes, I would not touch one unless I wanted one "just because" In fall of 2009, never as an investment.
Last edited by MN-Born-n-Raised; 11-02-2009 at 05:28 AM..
Maybe someone can help me out since I am not an economist.
A house purchased in 2006 for 400k has dropped about 65% to about 140k today. What is the liklihood that it will drop another 25% by next year to 115k or double in the next 3 to 5 years to 280k? Most reasonable people agree that prices will not return to original values in the foreseeable future, but an eternal optimist like myself sees value.
Now economists and financial experts are very smart people. Were they not the one's who told people not to be in the stock market and to stay in cash missing a 52% rise in the S&P since March. Many people who moved their cash into stocks last year "anticipating" a recovery are now plus in their accounts. Those who followed the experts are still wallowing in losses "waiting" for the market to recover. Now the experts are beginning to tout the stock market. If anything one should consider selling, raising cash, and look into other undervalued options such as...
I bought my home in March 2009 an REO for 65k
nothing on the market comes close to what I bought.
When I purchased there were over 100 properties in the reo listings fitting my criteria. Now less than 50 are there. Most of those 50 are complete dumps. Prices are still falling but nothing worth buying.
I bought my home in March 2009 an REO for 65k
nothing on the market comes close to what I bought.
When I purchased there were over 100 properties in the reo listings fitting my criteria. Now less than 50 are there. Most of those 50 are complete dumps. Prices are still falling but nothing worth buying.
And if it drops 10%, who cares. I think it's safe to think that the $65K market was close to the bottom (or at the bottom).
It's a much different animal the higher you climb in pricing.
Maybe someone can help me out since I am not an economist.
A house purchased in 2006 for 400k has dropped about 65% to about 140k today. What is the liklihood that it will drop another 25% by next year to 115k or double in the next 3 to 5 years to 280k? Most reasonable people agree that prices will not return to original values in the foreseeable future, but an eternal optimist like myself sees value.
Now economists and financial experts are very smart people. Were they not the one's who told people not to be in the stock market and to stay in cash missing a 52% rise in the S&P since March. Many people who moved their cash into stocks last year "anticipating" a recovery are now plus in their accounts. Those who followed the experts are still wallowing in losses "waiting" for the market to recover. Now the experts are beginning to tout the stock market. If anything one should consider selling, raising cash, and look into other undervalued options such as...
It's a mistake to assume housing will act like the stock market.
During the housing boom, labor, land, and materials had run-ups.
It's reasonable to assume the cost of rebuilding LONG term is a good indicator of things to come in 5 years. But we all got accustom to 2006 prices. Look at building prices in 2009.
If you are living in the home it's a different situation if plan on buying it and using it as a vacation home. If it's the later, depreciation, property taxes, maintenance, cost of money (or opportunity costs) play into the formula even IF you buy "below cost". Plus, you could own an anchor in the future. Homes are not like stocks. You cannot push a "sell" button.
Maybe someone can help me out since I am not an economist.
A house purchased in 2006 for 400k has dropped about 65% to about 140k today. What is the liklihood that it will drop another 25% by next year to 115k or double in the next 3 to 5 years to 280k? Most reasonable people agree that prices will not return to original values in the foreseeable future, but an eternal optimist like myself sees value.
Now economists and financial experts are very smart people. Were they not the one's who told people not to be in the stock market and to stay in cash missing a 52% rise in the S&P since March. Many people who moved their cash into stocks last year "anticipating" a recovery are now plus in their accounts. Those who followed the experts are still wallowing in losses "waiting" for the market to recover. Now the experts are beginning to tout the stock market. If anything one should consider selling, raising cash, and look into other undervalued options such as...
The real estate right now in Vegas is simple for an investor. Its not about whether or not it will appreciate in value in the next five years...it won't.
Its all about if you can rent it at a profit and continue to do so in the face of rising unemployment.
For instance, a year ago or so, there were disaster properties that could be had for $70-80K and fixed up on the cheap if you knew what you were doing or had contractor hook ups. Those properties now sell cleaned up in the $135-140K range. At $70-80K, you can rent for $1000 a month and make a killing. Even if you have to eventually drop to $700-800 a month, you make out ok. And that rent is sustainable because two or three incomes can afford it no matter what happens with the economy. But at the higher price range, $1000 a month is barely breaking even after factoring in taxes. And I believe its wishful thinking to assume you will get $1200-1300 a month for that sort of property.
Right now, I don't see good buys for investors and its why I call them delusional at this point in time.
In September, a popular form of financing used by first-time home buyers – government-insured FHA loans – accounted for 53.8 percent of all home purchases, up from 52 percent in August. Absentee buyers bought 40.4 percent of all Las Vegas–area homes last month – the highest figure for any month this decade. Absentee buyers are often investors, but could include second-home buyers and others who, for various reasons, indicate at the time of sale that the property tax bill will be sent to a different address.
Think about that for a second: investors probably account for more purchases in Vegas than at the height of the bubble. Combined, these 2 forms of purchase account for 94% of all purchases in the "recovering" Vegas market. Who was saying that the 1st time buyer with their $8K credit wasn't a factor in Vegas housing "recovering" market??
Next, 5014 homes were closed in September and 68.4% were foreclosures sales. So 3429 foreclosure homes left the market but 3162 were NEWLY foreclosed on. Pile on some more phantom inventory. 3162 NEW foreclosures in a month does not seem like a deflated bubble especially is they are coming in from higher value homes. Once the tax credits end, I predict you will hear some more deflating.
The bubble is over??? Don't put away your pom-poms yet; we need some more cheerleader to find some buyers.
Last edited by MN-Born-n-Raised; 11-03-2009 at 05:53 AM..
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It's rational for lenders to tighten credit when they see massive defaults. Since you had strong sales, it is the reason you cannot understand why it can go down further. You said it yourself. So think harder. How come sales were so strong yet prices dropped?? For the record, it's why prices may very well have to drop again to reach the equilibrium in 2010. 
Brilliant. That won't work when the market looks to be going down so they started this approach in the May-June timeline.
You are not looking at the whole picture. You are looking at it from a street view point (which has it's merits). There is a reason why people who HAVE jobs are worried.
Those are the exceptions to the rules. As in 99% of all things you buy go down in value over time as compared to a new one. That was what we were comparing; the cost of new versus existing. New (all things being equal, will always be more. My point was Duh.
I never attempted to address why the massive build-up deflated. That was artificial higher in the sand states. But as I said, many towns had a little of that. Denver had Aurora, Riverside county's new spec homes in CA, the outskirts zip codes in Sacramento. I've been looking at buying a spot warmer than MN for awhile (I've been looking at all areas before honing in on AZ). All of those areas had one thing in common. They were off the beat-in-path and had creative financing.
And as the country falls deeper into a recession (after extracting government spending) we just don't know what is going to happen. One thing is for sure, the seats will be empty at LAS for months to come.
I just think that is wishful thinking. I get the feeling that the agents on the ground have skewed vision and ignore the other statistics. I will bet to a larger degree that the homes North of $500K are in much worse shape to fall further in nearly every market including Vegas.
