Wednesday, February 25, 2009

Las Vegas Housing Crash Continues

Since the peak of the economic boom in 2005/6, I've been writing that Las Vegas was extremely vulnerable and would ultimately feel the brunt of any economic downturn.

Many, based on previous history, felt that I was wrong and thought the city would be insulated from any recession, as peoples' "vices" would still need to be serviced and they would always be willing to spend in doing so..

See this link for more on this topic: The Las Vegas gravy train has ended

Anyway, with the cheap-credit infused prosperity of the early decade, Las Vegas experienced one of the nation's steepest rise in home values - as the masses of soon-to-be millionaire investors flocked to the city to compete with the 6,000 or so new LV monthly residents who came to fill the many new service sector/gaming jobs created by the massive hotel/gaming construction boom - spawned by easy credit and analyst profit predictions that reached to the never-ending future... But I digress.

Ultimately, the factors above, combined with creative financing - which provided affordability regardless of price - created a massive demand for homes and inventories were quickly gobbled up - causing prices to go parabolic as they reached out and touched the stratosphere.

But the party eventually had to end - regardless of what all the kool-aid drinkers wanted one to believe.

Last year I wrote that the median house price in Las Vegas would ultimately fall to levels seen in 1999 - Las Vegas homes for $60 a Square Foot?

Well, based on recent data from Housingtracker.net, which is a combined look at condo and single-family home statistics, Las Vegas's median home values are currently down 40% YoY and 53% from April 2006 (April 2006 Median=$344,900; Today's Median=$162,500).

Based on the data/trends above, combined with the significant uptick in Las Vegas's unemployment situation and lack of available mortgage credit, I anticipate foreclosures and inventories to significantly increase and prices to fall another 30% by this time next year.

Stated differently: Today's Median price is $162,500. After a 30% haircut from here, I expect to see a median of ~ $115K by March 2010 - very close to the $60 median price that I wrote about last year (link above).

But I may have been too optimistic in predicting that $60SF floor, because I'm now starting to believe that won't be the ultimate bottom...

Best
Randy

19 Comments:

At 2/25/2009 8:08 AM, Anonymous Anonymous said...

Take a look at www.pointbite.com and
Lew Rockwell 2/21/09. Parts 1 and 2.

 
At 2/25/2009 10:20 PM, Anonymous Anonymous said...

In Detroit, homes are selling for 15 grand and no buyers. One also has to remember that most of our mortgage money is coming from overseas.

 
At 2/26/2009 7:16 AM, Anonymous Bud said...

I was in Vegas in Oct and Nov looking to buy a home. In the 11/8 edition of the RJ, Dennis Smith of the Home Builder's Research group, was quoted, "If you're looking for a better deal in 2009 than you can find today, I don't think that's going to happen". What a joke as all I could see were significant weekly mark-downs in the asking price and this was in the better neighborhoods. What really scared me off, though, was the shadow inventory (homes not yet released for sale by the foreclosing institutions). I agree with Randy and think this thing still has a long way to go. Not wanting to catch a falling knife, I got out of town with my cash intact. I hope Randy can keep us out-of-towners more up to date on the shadow inventory. By the way, I lived in Vegas for 17 years and sold my home there and several rental properties when times were good. That was before "pure greed" took over the town.

 
At 2/26/2009 11:31 AM, Anonymous Scott Linklater said...

At some point, do you think that foreign investors will increasingly see this as an opportunity to invest for the long term?

Scott Linklater
www.how-to-land-a-job.com

 
At 2/26/2009 12:36 PM, Anonymous OperationNorthwoods said...

Scott,

Yes, just as 1946 was a good year to invest in Germany. But we're a long ways away from a bottom. After all, the US has largely been in a bubble since leaving Bretton Woods.

 
At 2/26/2009 5:42 PM, Anonymous Scott Linklater said...

This is more of a larger question that will extend beyond a comment box, but what is your game plan/suggestions for getting through this time?

Scott Linklater
www.how-to-land-a-job.com

 
At 2/26/2009 9:06 PM, Anonymous Anonymous said...

don't forget that as we move into hyperinflation, these "dollars" you are talking about as though they had some kind of fixed legally defined value( of course they DON'T) are more and more rapidly losing real value. Of course that is one of the main techniques of the swindle--get people talking in terms of "dollars" who don't notice that the "dollars" today are not the same "dollars" tomorrow, even though the word doesn't change the value does. Conveniently M3 is no longer released so this is harder to track now, by design of course...

 
At 2/26/2009 9:11 PM, Blogger Randy said...

Scott,

I'll keep it brief as I'm short of time, but suggest (not investment advice, merely explaining what I'm doing) a small list of important things to consider (note - this list is by no means all-inclusive):

Prepare for the worst and hope for the best - it's better to be prepared and wrong than right and unprepared...

1) Have several weeks cash on hand - just in case (national emergency, bank run/bank holiday, etc)

2) Store some provisions (emergency food/water/medical supplies) to get your family through any potential short/medium term crisis.

3) Know how to use a gun and get one - to protect your family from potential chaos and/or "have-nots" taking what you have.

4) Get physical - pull investments out of paper liabilities and into tangibles that could potentially be bartered - and buy some Gold and Silver if you can afford it.

I believe we're merely in the warm-up phase of this National economic crisis and it's likely to get MUCH worse...

Best

Randy

 
At 4/11/2009 11:55 PM, Anonymous Anonymous said...

Randy,

Im stationed in las vegas but i am currently deployed. I wanted to buy a house when i got back from my deployment in july of 09, i was wondering if you thought it would be a good time to buy? I have been reading a bit of your outlooks on things and its scary to think about but we all cant turn away from the possabilties! I thought with this 8,000 tax rebate and with the market being low already i thought i could get a great deal on a house. Thank you for your time! Amn Miller

 
At 4/12/2009 8:37 PM, Blogger Randy said...

Amn Miller,

Depends on many variables...

1) Do you plan on staying in the Military? (If so, probably not wise to buy right now)

2) If getting out of the service, do you plan to stay in Vegas for the next decade? (If not, don't buy now)

3) Do you mind being upside down on a home for an undetermined period of time? (If not, don't buy now)

4) If you plan to stay here, don't mind being upside down for a few years and have a secure civilian job lined up then buying may be worth considering at this time -- otherwise, I'd say no... far too many military friends of mine are in a tremendous pickle right now because they are upside down, can't sell and must soon PCS - bad situation all around.

Yes, interest rates are great today and the tax rebate is a very nice incentive - however, I expect prices to continue falling.

Over the longer term, mortgage rates will probably rise, but home prices will fall accordingly (overall - monthly mortgage outlay will be very close to or lower than that seen today).

Best of luck in whatever decision you make.

Randy

 
At 8/24/2009 12:05 AM, Anonymous Rebeca said...

The children of Michael Jackson reportedly enjoyed some summer fun with a weekend in Las Vegas.

 
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