Showing posts with label Party Over. Show all posts
Showing posts with label Party Over. Show all posts

Thursday, July 24, 2008

Nevada's fiscal woes among worst in Nation

The bad news just keeps pouring in for the once thriving, and once believed to be, "bullet-proof" Nevada economy.

Though I've been warning folks of the looming downturn since early 2006: Las Vegas—A House of Cards Bound to fall, many disregarded the info and/or considered me a nutcase.


Anyway, since that time, I've been trying to keep readers abreast of the unraveling situation as I see it.

A few of my situational awareness posts:


Las Vegas housing downturn is leading the Nation:

Nevada Tops in Foreclosures AND Price Declines!


Home to 15 of the top 20 zip codes hardest hit by the housing/foreclosure meltdown:

Las Vegas Tops Foreclosure List


Four years of housing gains lost in one:

We Ain't seen nothin Yet


Fewer flights mean less tourists and less gaming revenue:

Airlines: More problems for Las Vegas Strip


Las Vegas Gaming revenue is falling fast -- faster than post 9/11:

Las Vegas: Gaming Revenue down > 16%


Casino layoffs have just started:

The Las Vegas Economic Downturn Has Started


Vegas locals flat broke:

Las Vegas: All flash and no cash


High-end Auto Repo Business is booming:

Las Vegas Economic Downturn Increasing "High-line" Auto Repos.html">


Local Banks are having difficulty coping:

Local Banks Effected by Las Vegas Real Estate Crisis



Well, if the situation weren't dire enough already, it's now being reported that Nevada is among the top three in the nation for state revenue declines:

Nevada's fiscal woes among worst in nation


CARSON CITY -- As if you needed more bad news, Nevada's economic downturn now ranks as one of the worst among the 50 states.

A National Conference of State Legislatures report released Wednesday found that tax revenue in Nevada fell by 7 percent in the fiscal year that ended June 30 compared to the previous year.

Nevada ranked No. 3 among the 17 states that reported revenue declines, led by a 7.5 percent drop in Oregon and a 7.3 percent decline in Florida.

Twenty-eight states, including Nevada, expect further declines in the current fiscal year, according to the NCSL report. Nevada already has approved measures to reduce spending by $800 million in the current fiscal year.

"We are all going through the same problems," said Ben Kieckhefer, a spokesman for Gov. Jim Gibbons.

He said there is no magic tax that can snap Nevada and other states out of the economic doldrums. Gibbons remains committed in his opposition to any tax increase, Kieckhefer said.

"When the economy is struggling, it is not a good time to raise taxes," he added. "We need to cope with the revenue we have and weather the storm. If there were a recession-proof tax that didn't hurt people, then someone at MIT would have thought of it."

Kieckhefer said Nevada faces a special problem because of its tourist-based economy.
"It is not surprising that we are faced with economic problems when the national economy experiences a downturn," he said.

Since November, Nevada has cut spending in its two-year budget that ends next June 30 by $1.2 million. That is equivalent to 17.7 percent of its $6.8 billion two-year budget.


Bottom Line:

There's no end in sight to the bad news and (I believe) this bad dream will soon turn into a nightmare -- when the casino layoff's begin in earnest.

Note: I honestly get no joy out of seeing my local economy fall apart and watch neighbors/co-workers and friends lose their homes, jobs and previous way of life, but I do get a sense of "I-told-you-so".

What really bothers me though is: If a simple telecommunications manager and lay-economist (me) could plainly see this train wreck coming over two years ago, why couldn't the so-called "experts" see it -- and possibly do something to better prepare?



Randy

Saturday, July 05, 2008

Las Vegas: All flash and no cash


It's very popular to look/act the part here in flashy Las Vegas.

The cheap-money driven economic boon, which lasted through 2006, allowed the local masses to drive the best of new cars, wear fancy designer clothes, dine at trendy/expensive restaraunts and/or hang out at any one of the myriad of overpriced nightclubs here in town -- requiring a $20+ dollar cover charge (after a > 1 hour wait) and $8+ dollar drinks, just for the privilege of looking/acting like "you are someone" while hanging out with the "in" crowd.



Personally, though in the top 10% income bracket myself (just a point of reference -- not to boast), I'm too damned frugal (ok -- and too old) to really worry about these things, but I often laughed beneath my breath as I watched these eager masses of "trendy" folks fighting for their "perceived" status of "Got Bank" -- as I knew it was all a facade, wouldn't last, and the bills would one day come due.

When discussing the issue with friends, we would jokingly refer to the trend as "all flash and no cash".

Looks like we were right, as the party bills are now coming due and the years of "flash" now require some overdue "cash".


MensHealth ranks Las Vegas as top U.S. city for personal debt

If the number of foreclosures and bankruptcy filings didn't tell you Nevada's consumers stand on shaky financial ground, perhaps a new study will convince you of the fiscal peril visiting a legion of locals.

Web site MensHealth.com has named Las Vegas America's top city for the amount of personal debt -- credit card balances, auto loans, home loans and other consumer financing -- its residents carry. And those considerable obligations could worsen an already stagnant local economy, experts say.

Editors from MensHealth.com didn't comment for this story by press time. But a summary of criteria they used to develop their roster listed statistics including foreclosure rates, housing prices, bankruptcy filings, credit scores, levels of credit debt and credit usage.

Las Vegas or Nevada dominate at least a few of those indicators.

The state has spent most of the last year as No. 1 in the nation in foreclosures, according to Irvine, Calif., real estate research firm RealtyTrac. Las Vegas landed among the markets experiencing the biggest slides in housing prices -- 20.2 percent year-over-year in the first quarter, according to the National Association of Realtors -- and the state frequents the top 10 list in number of bankruptcies. And a recent TransUnion study found the Silver State has a higher percentage of consumers delinquent on credit card payments than any other state.

The West dominated MensHealth.com's list of worst cities for debt, with seven of the top 10 falling within or west of the Rockies.

Billings, Mont., posted the lowest load of personal debt.

Trends among local consumer agencies testify to growing debt loads in Southern Nevada.

Michele Johnson, president and chief executive officer of Consumer Credit Counseling Service in Las Vegas, said the nonprofit's client base jumped 70 percent this spring compared with a year ago. The stories she hears from the group's newest clients revolve mostly around housing, with interest-only and option adjustable-rate mortgages squeezing homeowners who can't afford rising borrowing costs.

"I've never seen it this bad. Never," said Johnson, who's worked for the service since 1982.

Reasons for high debt in Las Vegas stump experts. But Johnson speculated the influx of residents and high cost of living play roles.

"A lot of folks move here knowing that jobs are very plentiful, so they uproot themselves, move here with minimal assets and find the cost of living is much higher than they anticipated," Johnson suggested. "Insurance and day-care costs are very high, and though jobs are plentiful, they're not necessarily well-paying."

The result: Consumers fall back on credit cards to supplement income and meet monthly expenses.

Throw in exotic mortgages, which tens of thousands of local consumers took out from 2005 to 2007 to buy homes, and the problem compounds, Johnson said. As interest rates adjusted upward, housing payments ate into earnings and forced expenses ranging from food to utility bills onto plastic.

Snowballing debt, in turn, makes it tougher for consumers to respond to economic contraction.

"Consumers (with substantial obligations) just don't have the flexibility to spend, and any hit to their income becomes magnified through the burden of keeping current on their debt," said Joel Naroff, an economist and president of Naroff Economic Advisors in Holland, Pa. Markets experiencing economic downturns would suffer even more if residents carry big debts, he added.

Rising debt also hurts economies because it leaves consumers with less discretionary cash. The drop in spending on nonessentials hits big-ticket items hardest, with buyers picking up fewer cars, appliances, televisions and other high-dollar goods, Naroff said. Smaller operations, including restaurants and local retailers, suffer as well.

"A lot of people used their homes, especially if they got a year or two of price increases, to get home equity lines of credit and loans, and those loans became an important source of income," Naroff said. "Those (equity) funds purchased a lot of goods."

It's not the first time consumers overextended themselves en masse, Naroff said, and he expects the historic cycles to repeat themselves. That means indebted consumers will retrench in the next two to three years, cutting back on credit and improving their balance sheets.

But Naroff noted one key difference this time around that could lengthen recovery time. Unlike previous eras, big mortgages anchor today's heavy debt loads, and those heavy obligations mean "it's really going to take a while to get things back together again," Naroff said.

"It's going to spread at least through next year," he said. "How much farther is hard to know. Part of it will depend on how the economy bounces back."


Bottom line:

The Las Vegas housing market has tanked, credit markets have dried up, tourism is falling, gaming revenue is down, inflation is raging, and the bills are now coming due.

Certainly things are looking bad for Vegas now, but just wait to see what happens when the casino layoffs begin in earnest and the unemployment lines grow... We ain't seen nothing yet!



Regards

Randy

Saturday, June 14, 2008

Las Vegas Downturn Gathering Momentum

I've been warning folks about the looming Las Vegas downturn since the height of our economic boom back in early 2006 and since that time I've provided readers with periodic Las Vegas economic updates (a couple of my posts below -- more can be found on right side of this blog):

The Las Vegas Economic Downturn Has Started

Las Vegas's Economic Downturn Getting Worse


Today's update will highlight some of the more recent LV economic woes, illustrating that the issues are gathering momentum and won't end anytime soon.



Las Vegas economy looks like busted flush

On the surface, the Las Vegas economy looks dangerously like a busted flush.

As if the housing crisis wasn’t bad enough, hotel occupancy is down, visitors are spending less, commercial projects are running into trouble and convention revenues are dwindling.

Even the city’s casino operators, traditionally seen as relatively recession-proof, reported a sharp downturn in their fortunes in the first quarter, in part because they have expanded their leisure and retail offerings, which are more sensitive to the fortunes of the broader economy.

Harrah’s, the world’s largest gaming group, with eight casinos on The Strip, including Caesars Palace, reported a first-quarter loss of $187.8 million after what Gary Loveman, its chief executive, described as a “lousy” March. The Tropicana resort filed for bankruptcy protection this month because it could not sustain its debt payments. Since November, shares in Las Vegas Sands, the owner of the Venetian and Palazzo resorts, have fallen by 38 per cent, while MGM Mirage, which controls Bellagio, Mirage and eight other Strip casinos, has dropped by 42 per cent.

But there are still $36 billion of new hotel, gambling and housing resorts being built, including an entire quarter-mile stretch at the centre of The Strip.

If recent developments are anything to go by, the chances are that a good portion of the new corporate construction will run into difficulties and some will be scrapped.

LAS VEGAS ECONOMY: Gaming revenues tumble again

The slumping national economy has affected the bottom line of Nevada casinos much like what happened in the wake of the terrorist attacks of Sept. 11, 2001.

For the fourth straight month and the fifth month out of the last six, gaming revenues decreased as gamblers cut their discretionary spending.

The gaming win in April was just above $1 billion statewide, a 5.05 percent decrease compared with $1.053 billion won from gamblers in April 2007.

Frank Streshley, the control board's senior research analyst, said the amount casino customers wagered on slot machines declined for the sixth straight month, an economic indicator that shows casino customers are spending fewer dollars.

"You have to assume high gasoline prices have cut into people's budgets," Streshley said. "You can go through every reporting market, and there are declines with what people are spending on slot machines. It falls in line as to how people are spending less in other areas as well."

Airline cuts to squeeze Las Vegas resorts

Airline capacity cutbacks combined with U.S. economic softness look set to take more money off the tables at Las Vegas Strip resorts after the summer, likely forcing room rate discounts on top of already declining visitor rates.


Work is under way to add more than 40,000 luxury hotel rooms to the gambling corridor -- about one-third more than today -- but it looks as though operators will have trouble filling them up.

The Airline cutbacks will likely mean higher fares for remaining seats as well as more time-consuming travel routes, Jacob said, which could deter potential Las Vegas visitors

Hooters Casino Sale Termination Spells Trouble For Owners

The ownership of the Hooters Casino Hotel in Las Vegas has found itself in deep financial trouble as a plan to sell the resort has fallen through. 155 East Tropicana, an investment and holding company, was forced to terminate the potential sale of the casino to Hedwigs Las Vegas Top Tier after the purchaser failed to make a $500,000 payment due by a June 6th deadline.

Although Hedwigs' offer was unsolicited, and despite Hedwigs forfeiting a non-refundable $5.5 million in deposits and payments for extensions, East Tropicana still finds itself in an untenable position regarding its debt.

Moody's Investment Service has downgraded Tropicana's corporate rating and the rating on its secured notes, as well as its default probability.

Lenders give Herbst Gaming more time to repay debts

Herbst's reliance on budget-conscious customers drives down profits


Herbst Gaming reached an agreement with lenders this month that buys the company more time to work out a deal with them and potentially avoid bankruptcy court despite the company’s worsening finances.

The agreement includes suspending payments on bond debt until Sept. 30. Most of the company’s $1.1 billion in debt is in bank loans, which carry less risk than corporate bonds.

The company’s slot route and small casino business benefited for many years from Las Vegas’ population growth but is now feeling the brunt of the slowdown, as Herbst caters to budget-conscious customers who are more affected by a downturn, Farrell said.

Herbst had $16.5 million in losses in the first quarter due to higher gas costs and the economic slowdown, with slot route operating profit down 6 percent in the first quarter compared with a year ago and the company’s casino business down 5 percent over the same period.

Casino Bonds Crush Harrah's as Recession Hurts

Casino bonds are generating the worst returns for investors as companies from Apollo Management LP's Harrah's Entertainment Inc. to Herbst Gaming Inc. risk bankruptcy under the weight of their debt.

High-yield, high-risk casino bonds, which returned 10 percent during the last recession in 2001, are the biggest losers this year, according to Bank of America Corp., as consumers get slammed by record gasoline prices and the worst housing-market slump since the Great Depression. The debt has lost 4.4 percent, compared with junk bonds' average return of 1.4 percent.

Until the latest economic slowdown, casino bonds had gained a reputation for being recession-resistant, said Bruce Monrad, who manages $1.2 billion of below investment-grade debt at Northeast Investment Management Inc. in Boston.

Herbst Gaming, operator of 8,400 slot machines in Nevada, stopped paying interest last month, Tropicana Entertainment LLC and Greektown Casino LLC filed for bankruptcy in May and bond prices show Harrah's and Station Casinos, which piled on more than $25 billion of combined debt in the past year to go private, are also at risk of default.

High oil prices and falling property values are curbing spending on gambling at a time when casino operators have committed to spend more than $10 billion through 2009, according to Deutsche Bank AG. They invested $7.8 billion last year.

Casinos took on a record debt load before the economy's latest slowdown.

``This would probably be the most leveraged'' the gaming industry has ever been, said Michael Paladino, an analyst at Fitch Ratings in New York. ``There's going to be an increase in defaults.''

Moody’s offers glum Vegas outlook

Bond rating agency Moody's Investors Service released its most negative report yet on the Las Vegas Strip Wednesday.

Moody's analysts say this downturn will have a more negative effect on earnings than the period following the Sept. 11 terrorist attacks and will dampen earnings for the next 12 to 18 months.

While that seems hard for many to believe (witness many fewer layoffs and the simple fact that travelers are still free to travel) Moody's offers an able argument, already hinted at by analysts and economists.

"Las Vegas largely sidestepped trouble by using price discounts to lure skittish travelers," the report said. "Now, with consumers' anxieties centered on their economic well-being, that strategy is unlikely to be as effective. Las Vegas operators are preparing for an extended period of weak demand will have to turn to other levers, such as reduced capital spending or less aggressive financial policies, to hold up through the next year or more."

Las Vegas Office vacancies soar to seven-year high - result of 4,000 office jobs lost in 2007

Southern Nevada's office market further softened during the first quarter as a cooling economy ratcheted up unemployment resulting in a glut of available inventory. The valley had a 13.4 percent, first-quarter vacancy rate, 2.5 percent more than a year ago, and higher than the 2001 recession peak vacancies, Colliers International Las Vegas reports.


"There is no doubt that the Las Vegas office market is struggling through the current sluggish economy," Colliers' managing partner Michael Mixer said. "In 2007, office employment in the Las Vegas area decreased by 4,000 jobs."

Vacancy rates could creep higher in the future with 1.4 million square feet of new projects under construction in the first quarter, such as Centra Realty's $20 million, 100,000-square-foot Seven Series at Hughes Airport Center at 740 Pilot Road. There is also another 3.5 million square feet planned for future development, including an eight-story, 173,210-square-foot Class A office tower addition inside Hughes Center at 3893 Howard Hughes Parkway.

While demand for office space over the past two years was strong, it simply couldn't keep pace with new supply.

Las Vegas Restaurants implement survival techniques as business slows

Stumbling home sales and slipping resort earnings grab all the headlines these days, but the housing and hotel sectors aren't the only industries suffering from faltering consumer spending.

Restaurants are enticing fewer customers as well.

Industry members credit the restaurant slump to slower spending among three segments: Local consumers struggling with falling home equity and higher fuel prices; executives reining in corporate expense accounts for hurting businesses; and a 6.6 percent decline year over year in March in the number of local visits from conventioneers, who typically spend lavishly on meals out while in town.

State numbers on taxable sales reveal the dip in food-and-beverage spending.Taxable sales among restaurants in Clark County have fallen three of the past 12 months, including a 10.3 percent drop in February year over year.

Closing:

As I've pointed out before, this downturn will be much larger than any that have come before it. Gaming revenues have fallen ONLY ONCE since 1970 -- in the aftermath of the Sept. 11 terror attacks (they dropped a mere 1 percent from 2001 to 2002).

Thus far, compounded by the housing crisis, higher debt loads, higher gas prices, higher airfare/reduced flights, increasing layoffs, reduced credit availability, etc, the gaming losses have been far worse than that experienced in 01/02.

As stated in a previous post of mine: Las Vegas Preforeclosures Hit Record:

“ Las Vegas lives off the margin. Good times, fat margins; lean times, no margin. LV has no plan B, there's nothing to take up the slack from a decrease in visitor volume. Even dollar rich foreigners aren't going to hold up employment that is based on a volume service industry and housing construction.”

Regards

Randy

Saturday, April 19, 2008

Deconsumption: Timeline for Unfolding Crisis of Mankind

I'd like to refer you to a very prophetic article written by Steven Lagavulin back in May 2004 (Mainpage: deconsumption.typepad.com).

Steve's 2004 vision is absolutely amazing, and though his timeline has been off slightly, he has NAILED many of the events that have transpired through 2008. With such spot-on foresight (thus far), I think his outlook & viewpoints for the next decade should be seriously considered.

Main thoughts are: As we enter into a predicted depressionary period, we will deindustralize, deconsume, detach from the material world AND detox from mindless spending... Resources will become scarce, US Superpower status will be lost and WW III becomes quite possible. This depressed period will hone and temper our souls... Those that chose this as a test, and rise to the occasion will do just fine... those that are weak and cannot change will enter into the dustbin of history.

It is quite a long article and I've extracted the "meat" of it for you, but if you desire the full effect, please click on hyperlink below

Timeline for Unfolding Crisis of Mankind

Rules of Prediction

Rule #1) The three principle factors to take into consideration in any prediction are the Force of the event being viewed, the Conditions external to it that can alter its propagation, and the length of Time outward which we are trying to foresee. This rule really only applies in generality, since it inherently shows that there are so many different variables affecting the totality of events proceeding in the world and their further influences on each other, that we can really only claim to view possible future outcomes in broad brushstrokes. It also shows that the ability to foresee the future necessarily only takes into question the particular field we have elected to consider.

Keeping this rule in mind, I will try to present this outline in broad brushstrokes, and ask the reader to remember that the items I’ve selected to represent the unfolding Crisis are simply my own subjective reference points. Also, I make no attempt to look further out than 10 years, and will be broadening the brushstrokes even that far out until hopefully, like a Master Brush-painter, I’ll be able to represent the essence of the thing with only a minimum of ink. And if that isn’t the case, then maybe try to think of it as a work by Jackson Pollack…

Rule #2) The tendency when making predictions is to accelerate the natural propagation of events, and to do so on even course. Experience shows that large-scale events tend to unfold “in fits and starts”: moving at what seems to be glacial speed, and then suddenly seeming to “erupt” when some extraneous event acts as a catalyst to precipitate them.

Rule #3) It’s not realistically possible to predict how the Power Possessing Beings of the world will react to influence events, but they will almost certainly do so adversely. It’s somewhat easier to foresee the reactions of a large group of people than those of a small group, since a greater number of entities serves to regulate and streamline the degree of choices that are available to individuals. And the chief reason why the future almost never unfolds “naturally”, and in the manner we foresee that it will is because powerful people are always trying to manipulate it. Thus government entities, corporate directors, religious leaders, etc are continually acting to try to shape the future in their image. It’s a perfectly human impulse, and rooted in the nature of our consciousness: if we have this unique capacity to foresee how cause and effect will unfold, then our response will usually be to try to alter conditions—to the degree that we're willing and able—in an attempt to achieve a more desirable outcome. We all do this at almost every moment of every day. People with power, however, can obviously accomplish things on a much larger scale. But at the same time their actions will always be directed by their own imperfect, subjective view of the world--and almost invariably a view of the world that helps them to achieve more money, more power and more control.

Possible Timeline for Unfolding of Crises (w/ a US-centric bias):

Year 2004-2006

At first the significant stressors to Mankind will be economic collapse, social unrest, and to a very limited extent, the first signs of difficulty coping with the transition to a life of hydrocarbon scarcity.

During this period, currency devaluation—especially in the US Dollar—will be the significant problem, along with the resulting inflation as prices of basic commodities rise (or more accurately, fluctuate wildly following a general rising direction). There may be a triggering event which causes a sharp downward movement in the price of the Dollar, or it may be a continuation of the slow, “controlled” devaluation we are seeing currently, but regardless, even that will eventually accelerate as the foreign holders begin to capitulate. Inflationary pressures will be further exacerbated by the rising costs of gasoline and fuel oil, and their residual price effect on transport and shipping, travel, and food production. This will not be a result of “Peak Oil” conditions—although this will likely rise up to become the “cause du jour” for American and European activists. Rather, higher oil prices will simply be reflecting the instability of conditions in oil-rich regions, and also the insistence by foreign suppliers for higher prices to offset the declining value of the US Dollar (which oil is currently priced in). In fact, toward the end of this period we can expect to see oil-rich countries demanding payment in Euros or even Gold. This will accelerate the fall of the Dollar if it has not already crashed prior to this event, since Dollars will no longer be necessary to settle trade in the world’s most important resource.

In the US, the Federal Reserve will find itself chasing two rabbits (and catching neither): trying to reverse the massive inflation they’ve created over the past couple decades while simultaneously raising interest rates. The will try to telegraph each rate move in hopes they can control the resulting bond market decline. Consumers, especially in the US, will begin to drastically rein in their spending as rising interest rates force them to confront their massive personal debts. Unemployment will continue to rise in the US and EU as companies struggle to control costs and pare back under the growing realization that their customers are tapped out. On the heels of these events, debt default on all levels (Government, Corporate, and Personal) will likely begin to become problematic for banks and finance companies, which will be forced to turn the screws a little bit on their debtors. We may even see the first hints from Congress or the Senate toward reforming or repealing personal bankruptcy laws. There might be a return to “union busting” as corporations become desperate to survive, and strikes may become commonplace.

Housing prices will begin to decline, especially in upscale suburbs, as interest rates are forced up and many people find they cannot support—or are even upside-down on—their mortgage loans. Downsizing will become attractive (or more likely, necessary) in the face of rising unemployment. However, modestly-priced houses—especially those in or near cities having a diverse economic core—should hold up well.

There will likely be the beginning of a shift in public opinion away from SUV’s and toward the newly “fashionable” hybrid cars (and possibly alternative fuel cars as well). Expect the Hummer to become a watershed symbol for the end of an era. Still, it’s unlikely that Americans will give up their SUV’s without a fight, so it’s possible that Hybrid-Hummers, Enviro-Escalades, etc will be slated by the Big 3 automakers in an attempt to put a mind-spin on the more legitimate fuel-efficiency movement. National energy conservation and fuel economy campaigns appear.

The rising cost of oil will take its toll initially on industries such as air and ground transport and intensive agriculture. We will undoubtedly see at least one more major airline go under, and possibly more, as the government will be extremely hard pressed to get any kind of bail-outs approved. The rising costs of nitrogenous fertilizer and diesel fuel will drive up food production prices—further aggravated by the increased fuel costs for transport. As such, non-corporate, local agriculture and meat producers will become more competitive.

Violent civil unrest will begin to increase around the world as any number of angry, disenfranchised groups take their lessons from the Al-Queda handbook. The effectiveness of focused, persistent terror-strikes has grafted itself onto the world-view as a successful means for combating authority…or just simply sending a message. It’s possible the next terrorist attack on America will not involve foreigners….

The US-Mid-East War (nee War on Terror) is a major area of uncertainty because of the high probability for unexpected events. The US looks to be on track for repeating the mistakes of Vietnam, and public opinion is currently declining as the US is losing control of Iraq in many ways. The problem is that, unlike Vietnam, the US cannot simply “withdraw” as the region will quickly destabilize without their presence (thus cutting-off their control of the oil). The reinstatement of the Draft is already being bandied about, which might have flown if Gen-Xers were still of military age, but Boomers are not going to be eager to send their children off to Viet Nam II….especially when CNN has already shown them how un-romantic the defense of freedom really is over there. Still, a significant terror-event could serve to turn public opinion around, especially one on American soil…which is highly likely over this period of time. (Should such an event happen shortly before the November 2004 elections, however, it could backfire and become a public-relations time bomb for the current administration….). There is little doubt that Middle Eastern terrorist gangs are plotting attacks on American soil, and most likely the plans are of a sufficiently large scale to justify the effort. Most of these, however, will be poorly executed or thwarted altogether. Still, it’s likely that American society will have to suffer images of car-bombings at Pike Place Market in Seattle, or rockets fired into a major Las Vegas hotel, or some such.

One incident of high likelihood is that the rulership of the Saudi royal family will be overthrown or effectively compromised. This will severely weaken the US military position in the Middle East, and probably lead to a withdrawal of forces. In this event, oil prices would rise much more quickly and speed along most of the events in this Timeline.

World opinion of the US will probably continue to slide along with its economic and imperialistic fortunes. If President Bush is defeated for re-election this year, and his successor blames all problems on him and promises to redeem the American image, then there might be an opportunity to improve the country’s branding with the world. At least for a while. Any successor will find himself immediately caught up in the oil addiction issue, and with bad feelings in the Middle East and our troops already embedded there, it may seem awfully tempting to continue the Project for a New American Empire agenda. Meanwhile, Australia and Russia will be courting their Chinese neighbors, since that’s where their bread will be buttered. The same goes for the East Asian countries, including Japan.


2007-2010

This is the period where life will begin to seem more uncertain, and “triggering events” will undoubtedly pop up in many spheres to propel mankind headlong into the future. Because the “tectonic plates” of human interaction will be sliding and grinding together in all directions, there is also a high likelihood for some type of new and unexpected “extraneous” crisis to erupt—one that could not even be imagined today.

The Western-centric concept of “Globalization” will be fizzling fast as it becomes more costly to move resources around the globe. Money will be flowing fast out of the US looking for safe havens, and probably out of Western Europe as well. Asian currencies may become the beneficiaries of this, if their economies haven’t been stalled by the devaluation of their own massive dollar holdings, and the dwindling external markets for their products. But all currencies will be sliding, so perceived “strength” in any of them will be only relative. China will be hard-pressed to orchestrate a transition from an export economy to an import one, turning toward its own internal prosperity to provide a market for their goods. With massive overpopulation, it’s going to be almost impossible to sustain the kind of heated growth they’ve enjoyed for the past few years—without even mentioning the ravaging effects this growth is having on the environment worldwide. Critical pressures for food and oil there (China currently has no arable land left) will almost certainly turn Chinese aspirations northward toward Russia, with its overabundance of both—perhaps to forge friendly alliances…or perhaps not….

If not already underway, there is a high likelihood of a derivatives crisis triggering global bankruptcy in the financial world during this period, probably initiating in the US mortgage industry. Governments will be unable to honor real or implied guarantees. This will effectively doom any hope that the Central Banks might be able to “manage” the economic and currency crises that have been unfolding. Bond rates will continue to soar, driving bankruptcy rates much higher, especially among residential and small business borrowers.

Worldwide, a void will begin to be felt by the beginning decline of the US as a superpower. The signal for this won’t be hard to miss: China will “repatriate” Taiwan. Regional (or tribal) wars will spark up everywhere as both social distress and resource scarcity escalate. In South America, drug-cartels will almost certainly step up their terror-tactics against local authorities. Indian/Pakistani relations will probably breakdown become a global concern, for want of a more specific word…. The worst tragedies will occur in Africa, which will further become a basket-case of violence and disease.

China’s oil consumption will be outpacing any kind of conservation the US and Western Europe are struggling to achieve. Relations between these regions will almost certainly break down as they vie for control of remaining reserves. Much of this will obviously depend on developments in the US / Middle East conflict. If the US does not have direct control of Middle Eastern reserves, then it US will probably be on the short end of the negotiations, as Russia and the Middle East side with (or bow to) China in oil agreements. Poorer countries will be crushed by the cost of fossil fuel, and may become suicidally desperate (North Korea comes to mind…). The United Nations might possibly try to enact some type of import/export restrictions to help ease the strain on poorer countries. If World War III is in the cards for the Human race, we will probably see the powers of the globe positioning themselves sometime around 2010.

The US might likely begin implementing “stabilizing” policies to control the price of oil during this period, and certainly we will see more energy conservation campaigns to address electricity and natural gas use. By now the whole economy will be suffering, but hard-hit industries during this period will include ground transport, petrochemical processing, mail and shipping dependent companies, the automotive industry, and tourism. On the brighter side, congestion may clear a bit in major cities as two-car families downsize, and the poor return to the “car-free” way of living they’ve traditionally enjoyed. (This applies primarily to the car-centric US, where the number of registered vehicles presently exceeds the number of registered drivers). If not already, expect to see legislation imposing some type of sin tax on gas-guzzlers (perhaps even singling out SUV’s) and corresponding subsidies on fuel-efficiency and alternative-fuel vehicles. Flying thousands of miles to lie on a beach will become a thing of the past for all but the wealthy. Only a couple airlines will survive bankruptcy through this period, and its likely that the government will be initiating emergency subsidies to keep them going. Small resorts within two or three hours of major metropolitan cities will experience increased business.

Sometime in this period the media may assert the belief that we are making real headway in correcting our oil crisis. This might be attributed to new investments in drilling and exploration triggered by the past few years of rising price-profits at energy firms, and which will be coming online during this period. Or there may be reports of large new reserve discoveries (probably invented, but no one will be able to verify them). It may also be touted that we have been offsetting consumption by adopting a kind of hodge-podge of alternative energy systems. Regardless, this feeling that perhaps all will be right with the world once again will be illusory and will not last long, since China/East Asia will continue to gobble up all the hydrocarbons that we are potentially pumping or saving—and out-negotiating us for import contracts.

Power outages in the US and Western Europe will become more problematic as the outdated transmission infrastructure begins to sag. Rising natural gas prices will take heating and electrical generation costs with them. Here again, energy rationing will be all the rage, as it was in the 1970’s. Photovoltaic systems (solar electricity panels) should finally achieve a roughly breakeven cost-effectiveness toward the end of this period, as technological advances combine forces with the rising costs (and unreliability) of getting electricity directly from the grid. Still, PV and Solar-Reflective generating plants will be slow to come online. Domestic PV systems will be most popular, but only the well-off will be able to afford truly self-sufficient homes. Solar domestic water heating systems, however, will become de facto in new home construction, and will improve the resale value for existing ones.

We will probably begin to see a shift in housing demographics away from the suburbs, as people begin to migrate either “inward” to the convenience of the cities or “outward” to the safety of more rural areas (most likely to communities about 1 ½ to 3 hours from a major city). Furthermore, many people in cold climates will begin to move southward, while people in extremely hot climates move a little further north. Lastly, some will decide to leave the country altogether, perhaps in an effort to stretch the value of their remaining savings as far as possible.

The “whole foods” movement will really begin to latch-on in Western societies, as industrialized, processed foods, meats and milk become more expensive than locally produced goods. This, combined with economic hardship and unemployment, will lead many people—especially those in small towns—to rediscover to some extent an economy of barter and local markets.

Social discomfort will erupt in various ways, and we could expect at least a couple incidents of large-scale rioting in one or more large cities (highest probability lies with Los Angeles). More common will be the rising presence of anti-government and anti-corporate sentiment. In the drive to become independent of the high costs of social infrastructure, many will embrace the emerging popularity of sustainable-living communities, or eco-villages. This will lay the groundwork for how our society will overcome the Crisis period, and will involve a re-discovery of the “local economies” that people participated in before hydrocarbon energy fueled the Industrial Age.

Movies will begin to take on much lighter, more uplifting subject and tone. The classic Musical may return as a popular style.

There is some chance—probably somewhat less than 50/50—that the US may see a legitimate Third-party contender for the Presidency in 2008. If so, it would be a populist candidate running on a platform of public austerity and a return to the pre-Wilson ideology of US independence from international imperialism and diplomatic endeavors.


2011-2015

By this time period, the “impending-ness” of Peak Oil will be much more apparent. If no significant new reserves have been discovered, or conversely if China / East Asia have not experienced an economic collapse, then the developed countries of the world will find themselves in a position of extreme desperation to take direct control of the world’s supply from whomever currently has it—which will mean world war, concentrated in the Middle East, especially Saudi Arabia. Even if new reserves are found, where they are discovered will be a significant factor. If sufficiently large reserves are found in North America, violent crisis will be easily avoidable for the time being. The chance of this is extremely unlikely, however. Therefore, it needs to be recognized that if these events ensue then, because oil will mean life-or-death for the developed (and even under-developed) nations of the world, any conflict will quickly escalate to the use of nuclear and other “weapons of mass destruction”. If this happens then there will be no way to predict how the future will unfold, and the rest of the predictions for this period will be either accelerated or just moot….

In the US, oil and gas will gradually become more regulated as it is concentrated in places of greatest need, such as electrical generation, agricultural production, water processing, necessary transport, military uses, etc. Undoubtedly some kind of high-level (regulated) and/or low-level (unregulated) black market will develop, especially for gasoline. On the renewable front, solar photovoltaic systems may become more widespread, especially if sufficient investment has been made over the past few years to encourage the PV manufacturing industry.

Life in the cities will begin to break down, as basic services become unreliable and fresh food becomes scarce, and lines will frequently form at grocery stores when shipments come in. Things like blue jeans and tennis shoes may become luxury items. Crime of all kinds will have increased dramatically. Racial strife may flare up in some cities. Western communities will probably find that access to water becomes a point of contention, as rivers and reservoirs become coveted resources, especially around Denver, Phoenix and Southern California.

Even as city life becomes more difficult, many rural towns will experience a rebirth as they find themselves reorganized into eco-villages and self-sustaining communities, experiencing an influx of educated, industrious individuals. Life will begin to de-centralize (from an urban-centric structure) and regionalize (around natural resources), and the price of arable land and “hobby farms” will skyrocket. With this return to small, prosperous communities where whole families will be working together for the benefit of the community, a renewed sense of spirituality may begin to bloom. As distribution to these rural areas becomes costlier and more problematic, many things will become unavailable outside of the cities: fast food restaurants will close, as will many other chain stores, and things like truck stops, overnight hotels, and billboards might begin to disappear. However, items that are difficult to manufacture locally will also become scarce, or disappear altogether from smaller communities: electronics (including computers and cell phones), pharmaceutical medicine and medical supplies, plastic and rubber items, etc. Also, rural life may not be entirely safe and secure, as it’s likely that many people with more fearful, xenophobic tendencies will adopt the Survivalist mentality and form paramilitary communities far from the cities. This may lead to civil conflict over local land and resources, which would entail further government intervention in domestic security. More likely, however, is that most these groups will just bunker down with their fingers on their triggers until society appears to stabilize, and then seek to reunite and find a place within more organized and prosperous communities.

In developing countries, it seems likely that poverty and food scarcity worldwide will lead to civil disorder and social strife, especially in urban areas. This may in turn lead to government intervention in the daily life of people. There is some chance that outbreaks of disease will take their toll, especially in Africa, India, China, East Asia and Indonesia, as medical treatment becomes difficult to sustain at suitable levels and malnourishment and breakdown in social services become more widespread.


My closing thoughts: it's a pretty dire viewpoint but very plausible considering the events that are unfolding (food shortages looming, consumer inflation raging, Unprecedented US debt levels (consumer/corporate and gvt), dollar falling quickly, oil becoming scarce while demand increases, G7 financial crisis unwinding, China/Russia bonding and their control of natural resources growing, and the list goes on...)

Guess only time will tell, but I think Steve's viewpoint is worth serious consideration in any future planning.

Regards

Randy

Thursday, April 03, 2008

Las Vegas Preforeclosures Hit Record

Back in February 08, I told you that Las Vegas was #1 in foreclosures, and then showed you how we (unfortunately) captured 15 of the top 20 spots on the National Foreclosure List: Las Vegas Tops Foreclosure List.

Well, as I stated then and have been predicting all along, things aren't going to get any better anytime soon -- this was some bubble and we've got a long way to fall.


From the Las Vegas Review Journal Today: Bad news mounts in housing

The number of Clark County homes that entered preforeclosure status reached a record 6,152 in March, up 52 percent from February and more than double the 2,813 preforeclosures in the same month a year ago, Sacramento, Calif.-based Foreclosures.com reported.

The county has 15,937 preforeclosures through the first quarter of the year, or 3.11 percent of its 512,253 households, the online foreclosure source reported.

Nevada leads the nation with 2.42 percent of its households, or 18,087 homes, in preforeclosure through March, followed by Arizona (1.96 percent), Florida (1.87 percent) and California (1.05 percent).

Staggering foreclosure numbers are the result of a multitude of factors, including a meltdown in the mortgage lending industry, fraudulent appraisal values and overzealous speculators.

Real estate-owned, or bank-owned, homes in the county also rose substantially in March to 1,937, up from 1,640 the previous month and 1,763 in January. The three-month total is three times more than a year ago.

Jeanette Young said she's now faced with possible foreclosure on her home after losing her job at National Alliance Title, which closed in December.

President Bush's plan to give $600 tax rebates to help homeowners is a "joke," she said.

"I don't know anyone that has a mortgage that is $600, unless they've had the same loan for 10-plus years," she said. "Mine is $2,200 plus all the other bills associated with a home. I do not see any relief in sight for those of us who have lost our jobs, cannot find comparable income and now cannot make our house payments."


So, how is this foreclosure issue impacting the broader Nevada economy?

Nevada's January gambling revenue falls 4.8 pct

Nevada casinos won $1.06 billion from gamblers in January, a 4.8 percent decrease from the same month a year earlier, Nevada's Gaming Control Board said on Friday.


Hooters Hotel sees fourth-quarter decline

Hooters Hotel's management said the economic downturn late last year drove fourth-quarter revenue down as the property saw department wide declines.

Fourth-quarter net revenues declined 11.5 percent to $14.8 million from $16.8 million in 2006.
Casino revenues dropped 10.1 percent, food and beverage fell 12.1 percent, and hotel revenue fell 8.4 percent for the three months ended Dec. 31.

"The challenges presented by the current economy have eroded consumer confidence," said Mike Hessling, president of 155 East Tropicana, LLC, Hooters' parent company, during a conference call Tuesday. "It has caused certain customers to reduce their spending on leisure and entertainment."


States taxable sales plummet 5% in January '08

Nevada's funding problems worsened Friday when the state Department of Taxation announced that taxable sales for January plunged nearly 5 percent from the year before, the biggest drop of the state's current economic slowdown.

Every major component of the taxable sales base was down in January, from auto sales to restaurant purchases.

In a separate report issued Friday on Nevada's February unemployment rate, Bill Anderson, chief economist for the Nevada Department of Employment, Training & Rehabilitation, suggested that an upswing in the economy isn't expected immediately.


Governor Gibbons Dealing With Major Budget Cuts

Concerns are mounting that the $900 million state budget crisis could get worse. Thursday Governor Jim Gibbons was in town and he outlined how he intends to decide what to cut.

So far the conventional wisdom has been correct, it's going to get worse before it gets better. The governor said some departments will be spared from further cuts, while everyone had better get used to the same old, same old everywhere else.

K-12, public safety, corrections and juvenile justice. Should it stay or should it go? These are the decisions haunting Governor Gibbons. $900 million is looming and more programs want more money than ever before.


Nevada governor says budget shortfall is nearly $900 million

CARSON CITY, Nev. — Nevada Gov. Jim Gibbons said Monday that the state's budget shortfall could reach $900 million by mid-2009 and he'll work with legislators to find more ways of reducing spending beyond the 4.5 percent cutbacks he ordered in January.

After two closed-door meetings with both Democratic and Republican lawmakers, the GOP governor also told reporters that he hopes to avoid layoffs of state workers. However, there's still a possibility of additional budget cuts of up to 3 percent for some agencies next fiscal year.

The projected $900 million shortfall amounts to 13 percent of the nearly $7 billion state budget approved last year for the current two-year budget cycle, which runs through June 2009 - and if the revenue slump continues, the shortfall estimate will grow even larger.


City of Las Vegas Faces Historic Budget Deficit

The city of Las Vegas is in the red and facing one of the largest budget deficits in city history. The mayor and the council called an emergency meeting to come up with solutions.

The city finance director says the Las Vegas housing market and consumer spending are in a recession although overall the city is not in one yet. Still, it means huge cuts that will affect every department and Las Vegas residents waiting longer for services.

"Only an idiot would say that everything is going to be hunky dorey. It is not. We are just going to have to do what we can with the money that we have," said Mayor Oscar Goodman.


So, where does Las Vegas go from here?

For lack of better words than those I've already written, I'm going to repost some of my closing thoughts from a December 07 Las Vegas Housing Bubble Post, as they still apply

Las Vegas’s economy has been completely dependent on the discretionary spending of vacationers (Airlines, Hotels, Restaurants, Shows, Gambling, Drinking, Strip Clubs, etc) and the city lacks any real or substantial diversification. When tourism & discretionary spending finally start to decline (due to National negative savings rates, rising inflation and falling home values), gaming revenues will drop, hotel occupancy rates will fall, and thousands of layoffs will follow.

Those locals who find themselves unemployed will quickly find that they have very limited options, as the entire hotel & gaming industry will be feeling the same economic pains. The lack of industry diversification in the city will be a killer!

Currently, with housing values falling, the wealth effect is under strain and many people are having difficulty understanding what has happened to the housing market, while most are still holding on to the false hope it will recover somewhat quickly.

In the meantime, these folks have a mortgage that must get paid, all while coping with higher gas, food prices, tuition, insurance, energy bills, etc. Many are already strained to the max and the black hole of upcoming teaser rate mortgage resets will finally set them over the edge. (Note: refinancing will not be an option for those who have purchased within the last 3 years because they are already underwater; additionally many who have owned for decades used the cheap rates and housing boom to extract available equity--to live beyond their means; so they too cannot refinance).

This same issue is beginning to impact millions from across the nation!!!

Additionally, the home ATM machine that people used to draw money out of regularly has finally dried up, so they have ended up resorting back to the credit cards (the same ones they paid off with that home equity line of credit last year) just to make daily ends meet.

This is going to end horribly (on a national scale)!

BOTTOM LINE: When tourism starts to wane, due to people running out of discretionary cash, gaming/hotel industry layoffs will follow, cascading the impacts of the already doomed Valley housing market, as more locals will be unable to meet their monthly mortgage obligations.

Reduced spending levels, increasing layoffs, magnified home foreclosures and tightening credit conditions will cause a doubly painful domino effect on the Commercial real estate market and in due time, the impacts will be extremely painful to the entire economy. .. State Tax revenues will fall, budget cuts will follow and the increasing number of government layoffs will only exacerbate/compound the situation.

I think one of my readers summarized the situation best: “ Las Vegas lives off the margin. Good times, fat margins; lean times, no margin. LV has no plan B, there's nothing to take up the slack from a decrease in visitor volume. Even dollar rich foreigners aren't going to hold up employment that is based on a volume service industry and housing construction.”

Randy

Sunday, February 10, 2008

Las Vegas Tops Foreclosure List

Las Vegas tops foreclosure list:

The Las Vegas Valley is home to seven (eight if you include Henderson) of the top 10 zip codes and fifteen of the top 20 hardest hit by the housing/foreclosure meltdown.

The epicenter of foreclosures shifted to the booming city of Las Vegas at the end of 2007.

"What we're seeing is the impact of subprime mortgages coming due," said Rick Sharga, a spokesman for RealtyTrac.

These loans, which were particularly prevalent in Las Vegas, default at much higher rates than traditional, fixed-rate mortgages.

Zip code 89031 in North Las Vegas had the most foreclosures on its books as of December, with a total of 741 filings -- default notices, auction notices and bank repossessions. The nearby zip 89131 was second on the list with 665 filings, and illustrates just how the face of foreclosure has changed.

Unlike depressed Midwestern cities, the 89131 area is prosperous, with strong employment and income levels well that are above average for the state. The foreclosure problems in Las Vegas stem from the unaffordable terms of the mortgages themselves, rather than from local economic conditions.

"It's the [lending] products," said Gail Burks, president of the Nevada Fair Housing Center, "the option adjustable-rate-mortgages (ARMs) and hybrids. They're having a huge impact."

These loans feature low introductory fixed rates that reset to much higher ones, usually after two years, and adjust every six months or so after that. When they first adjust, the monthly payment on a $300,000 mortgage can jump by $600 or more, turning a barely affordable mortgage into a totally unaffordable one.

Contributing to the problem in Las Vegas was a steep run-up in home prices. In 2004 alone, the median, single-family home price in the city grew by 47 percent, and that was followed by another 14 percent rise the next year. By 2006, the median home cost $317,400, nearly 50 percent higher than the national average.

That compelled many Las Vegas homebuyers to use exotic ARMs to get the homes they wanted. Most intended to get a foot in the door, establish a good payment record for a couple of years, and then use their home's appreciation to refinance into an affordable fixed-rate loan.

But the numbers didn't pan out. "Prices in many Las Vegas communities have dropped tremendously," said Burks.

Top 20 Worst-Hit Foreclosure Zip Codes below--click here for entire top-100 list

So, LV is #1 in the Nation and it currently holds 15 of the top 20 places on the foreclosure board. Yup, pretty bad, but I think it's only going to get worse:

According to Housingtracker.net, Las Vegas inventories are beginning to rise again (27,000+) and median prices have already dropped 16% Year over Year (YoY).

Additionally, Clark County (LV) Realtytrack foreclosure listings are rapidly approaching the 40,000 mark (39,352 today).

When you take a look at recently sold homes, the picture gets even bleaker. Last month (January 08) a total of 983 homes were sold in Vegas (38% of which were properties taken back by banks after foreclosures) and less than 900 were sold in December.

After digesting the figures above, I'm certain you can see that we’re staring at a tremendous inventory overhang, that when coupled with tightened lending standards and very serious nationwide banking/credit problems, prices have only one way to go--DOWN, much further Down!

The lack of buyer volume and continued downward price pressure will prevent tens of thousands of additional homeowners, who are sitting on the cusp of foreclosure themselves, from selling and they too will end up losing all. Their foreclosed homes will add to the huge glut of bank owned homes and the bank-owned discounted sales will continue to drive prices even lower--a downward, out-of-control spiral, feeding upon itself.

As I’ve stated previously: I believe we’ll see AT LEAST a 50% haircut from 2005/6 peak prices and I don't think 60-70% off peak in some cases is too unrealistic.

EXAMPLE:
Just a short 8 years ago (2000), I purchased a brand-new 3,100 SF home (5Br/4ba) with a 4-car garage on a 10K SF lot for $185,000. Less than five years later it sold for $450K--a 243% price increase. Now, if we take that same late 2004, $450K price and give it a 60% haircut for 2009-1010 we're back to ~ $180K (what my neighbor paid in late 1999).

I'm very confident we'll see these realistic prices again -- within the next couple of years. However, unemployment and inflation will be much higher and the economic sentiment of Las Vegas (and National) community will be significantly gloomier than that which we see today.


For more on the LV Housing Bubble Bust and the potential spillover effects see my December 07 post--LV Housing Bubble Update



Regards

Randy

Saturday, December 01, 2007

Las Vegas Housing Bubble Update

I’ve lived in Las Vegas for 12 years and had the rare opportunity to watch our Valley housing market explode with the largest, quickest, most irrationally exuberant run up in prices ever witnessed (back in 2005 Lost Wages {Vegas} was rated the fastest growing city in the US and housing prices better than doubled in less than five years).

Knowing that prices were rapidly rising and with interest rates soon to rise, I started (in late 2003) seriously researching housing issues. Eventually I decided to act on my basic understanding of the problem and ultimately sold my home late in the mania phase (end of 2004--just a bit early, but no one can pick THE top), and made out quite well.

Later, though completely out of the housing ownership market and now renting, I continued on with my voracious research and gained a much better understanding of the myriad of complex economic issues that impacted this housing bubble. I eventually tried to pass my knowledge on to those around me, but to many, I was merely a gibbering lunatic who didn’t know what the heck he was talking about. In due time, I became frustrated with my unsuccessful attempts in convincing these media-hyped & fed, brainwashed individuals, so I decided to take to the web--to possibly help others who were themselves trying to understand the developing situation. Ultimately, I started this Blog back in December 2005 with my first post.

Though I didn’t specifically target Las Vegas’s housing bubble in my routine posts, I did occasionally address this booming Valley bubble market (see links below):

Las Vegas—A House of Cards Bound to fall

Las Vegas Housing Inventory Breaks 20,000 Mark

Las Vegas Housing Party is Nearly Over

Today’s post (LV housing bubble update) is based on recent developments in the market, so please allow me to share with you some new data and current media releases that (I believe anyway) irrefutably prove that my Las Vegas bubble predictions have been correct (thus far anyway—as we have much farther to deflate):


REAL ESTATE COMPANIES GOING BANKRUPT:

Prudential Americana Group Filed For Bankruptcy
Nov 28, 07: Prudential Americana Group, one of the largest residential real estate firms in the Las Vegas Valley, is filing for Chapter 11 bankruptcy so it can reorganize its debts while continuing operations.

Prudential Americana is the second big Las Vegas realty firm to seek bankruptcy protection in recent months.

Jimmy Dague, president of Vision Properties doing business as Century 21 Advantage Gold, filed for Chapter 11 bankruptcy protection in August 07.




NEVADA FIRST IN PREFORECLOSURES:

Nevada First in Preforeclosures
Nov 27: Nevada leads the nation in the actual number of preforeclosure filings through October with 40.5 preforeclosure filings per 1,000 households.

Nevada had 30,276 preforeclosure filings through October, an increase of 106 percent from last year. The state's per capita rate of 4.05 tops
Florida (2.86), Arizona (2.05) and Colorado (2.04).

Foreclosures.com also showed Nevada was No. 1 in real estate owned filings, or properties owned by the lender, at 10,703 through October, or 1.45 per capita. Real estate owned filings climbed to 54,418 nationwide in October, up 24 percent from 43,941 in September.

The numbers are grim for hundreds of thousands of homeowners trapped by rising mortgage payments, stagnant home prices and tightened credit markets, Foreclosures.com President Alexis McGee said.


31,000+ Clark County Foreclosures
Based on Realtytrac Data, > 31,000 homes in Clark County are in some state of foreclosure


FUTURE WEAKENING EXPECTED:

Mortgage Meltdown
Nov 28: U.S. homebuilders meeting in Las Vegas said the housing market probably will weaken in 2008 as foreclosures rise and banks tighten lending standards.

Demand has deteriorated in many markets, limiting the prospect of a rebound in new home sales, chief executive officers for
D.R. Horton and Beazer Homes USA said Tuesday at a JPMorgan Chase & Co. conference at Mandalay Bay.

Next year "is going to be worse than '07 for us and for the industry in general," said
Donald Tomnitz, CEO of Fort Worth, Texas-based D.R. Horton, the fourth-largest U.S. homebuilder.

The housing slump that began in 2005 has erased about $36 billion in stock market value for the largest 15 homebuilders this year through Monday. New home sales dropped 23 percent in the year through September.

California and Florida housing markets continue to weaken and the Las Vegas market is "soft," Tomnitz said. New home sales in Phoenix will likely worsen in 2008, he said.


MEDIAN PRICES FALLING; INVENTORY GROWING YoY:

Existing home sales (median prices)
Based on Housingtracker.net Data, existing home inventories have increased >25% and median prices have dropped >10% YoY


HOMEBUILDERS DESPERATE; SLASHING PRICES:

Ryland reduces prices; Deep Discounts
Every Ryland Homes community across the United States will offer special savings on quick move-in homes during the Ryland Homes Savings Spectacular Nov. 9-11, said Dana Rogers, Ryland's vice president of sales and marketing.

The builder will offer unprecedented savings at all of its communities, including those in the
Las Vegas area, Rogers said.

"It takes a lot to impress today's home buyer," Rogers said. "That's why we're going big and offering savings of up to 25 percent or more off the base price of the home."

Rogers gave specific examples illustrating the extent of the discounts. At the Providence community, the price of the Pearl residence, home site No. 199 in the Auburn Collection, will be reduced from $442,990 to $316,990 -- a savings of $126,000, he said. The Angora residence, home site No 167 in the Ellingwood neighborhood at Mountain Edge, will be reduced from $541,790 to $393,790 for a savings of $148,000, he said.

Lennar Real Deal—HUGE REDUCTIONS MUST SEE (Very Small Sample Below)

REAL ESTATE: Everything must go
Builders are sparing little expense in a bid to entice hesitant buyers into a soft housing market.

Virtually every major builder in the
Las Vegas Valley has pushed big sales this fall, and the price breaks have been steep.

Pulte Homes marked down prices 15 percent on certain models, with discounts of up to $80,000 on some completed new homes during one October weekend. The builder's Del Webb subsidiary sliced $55,000 from some of its asking prices. Rhodes Homes has offered as much as $100,000 off on finished houses. Lennar Corp. has slashed prices on some models by about a third; Lennar cut the cost of a 5,000-square-foot home in its Earlstone community from $911,490 to $662,490, and a 4,498-square-foot home in its Silver Creek subdivision went from $807,290 to $612,290. Centex Homes has clipped $25,000 to $100,000 off the prices of some of its existing homes, and is ponying up as much as $21,000 in closing costs on some models. American West Homes' valleywide "liquidation sale" on Nov. 10 and Nov. 11 featured savings of up to $143,000.

After Astoria Homes dropped prices on standing inventory by as much as $200,000, or 27 percent, Oct. 12-14, traffic at least doubled across the board at Astoria communities, and even tripled in some cases, said Tom McCormick, the company's president.


SLOWING CONSTRUCTION:

Data signal slowing construction
Southern Nevada's construction industry showed more signs of slowing in the third quarter, the Las Vegas chapter of Associated General Contractors reported.

Taxable construction spending fell 14.8 percent over the past 12 months to $3.13 billion, largely a result of declining residential building permits. After three years of high-volume development, Las Vegas has experienced a 46 percent drop in single-family permits and 56 percent drop in multifamily permits.

Clark County has the nation's sixth-highest foreclosure rate and has one of the highest concentrations of subprime and adjustable-rate mortgages, the AGC market brief noted. Many housing analysts suggest the trend will worsen in the next 12 months as some 2 million mortgages nationwide reset to higher interest rates.

Construction employment fell 1.2 percent from a year ago to 108,500 in September, representing 11.6 percent of Southern Nevada's total employment base.


TAX REVENUE FALLING:

Nevada Taxable Retail sales falling
Taxable sales in Nevada faltered yet again in September, marking the sixth straight monthly slide in a key revenue generator for state government.

Thursday's report showed a statewide 1.5 percent drop compared with September 2006, tabbed to the
housing slump as well as a growing reluctance overall to spend.

"People may not have as much discretionary
money. That's how I read it," state economist Jim Shabi said.

Taxable sales are the state's biggest source of revenue, and the Department of Taxation report shows the general fund portion of the state budget is down $24.4 million, or 2.3 percent, from Economic Forum projections a third of the way into the 2008 fiscal year.

Collections on
business tax and license fees as well as excise taxes also are lagging, the report showed.

Last month, Gov. Jim Gibbons directed state agency heads to prepare contingency plans to cut spending by 8 percent.



State Tax Revenue off the mark
CARSON CITY -- State government's financial woes worsened Thursday, when the Department of Taxation released reports showing tax revenue falling further behind projections.

Revenues from four major taxes -- sales, business payroll, insurance and real property -- were below expected levels for July through September, the department announced Thursday.

As a result,
Gov. Jim Gibbons might have to cut more than the anticipated $285 million from the state's $6.8 billion, two-year budget when he hacks state spending in January. "It is certainly going to make the hole bigger," state Budget Director Andrew Clinger said. Gibbons has refused to identify where he might cut.

Clinger denied that Gibbons has asked state agency directors to request employees voluntarily take two weeks off without pay to avoid layoffs. That option, however, might be gaining favor with department directors, he said. "The departments are looking at anything they can to make the cuts," Clinger said.



SOUTHERN NEVADA ECONOMY: Indicators plummet to '07 low
The downturn in Las Vegas' real estate market, combined with a 5.4 percent decline in gaming revenue for August, dragged the Southern Nevada Index of Leading Economic Indicators to its lowest level of the year.

The October index, based on August data, dropped to 132.67, with six of the 10 series contributing negatively. Its down from 133.46 in September, but remains slightly higher than a year ago. The index has relinquished its gain from the beginning of the year, when it stood at 132.98.

"The Las Vegas economy in August performed at less than a stellar rate," economist
Keith Schwer of the Center for Business and Economic Research said.

Residential building permits continue to plummet by more than half and commercial permits are off nearly 20 percent. Taxable sales fell 5.2 percent in August. Housing has "taken a bite out of the robust expansion" of the past few years, he said.


Based on the data above, I hope that you are now inclined to believe that my Las Vegas Housing market forecasts have, thus far, been correct. With that, I would now like to state for the record that I believe Commercial Real Estate is the next bubble to pop.


COMMERCIAL REAL ESTATE BUBBLE WILL BE THE NEXT TO POP:

Commercial Real Estate Bubble Economicrot
Back in early 2006, my Blog was mentioned in a BusinessWeek article discussing the fact that there were many folks ranting about the housing market bubble, but few thought that there was a Commercial Real Estate bubble. I quickly fired back that we would, in due time, see this one pop too. Though, at the time, I did feel we would be in a recession by now and that Commercial Property would have already followed suit, I do believe the first signs have finally appeared and the Commercial Property Bubble is ready to let out some major pressure.

Commercial Real Estate next: WSJ & Calculated Risk
The value of commercial real estate, which nearly doubled in the past seven years, is now starting to decline due to the credit crunch, according to a report set to be released today by Moody's Investors Service.

The report found that the value of commercial property declined 1.2% in September from the previous month. Particularly hard hit were apartments in the West and office property in most states other than California.

The report is an early sign that the commercial-property sector is being dragged down by the growing reluctance of lenders to extend credit for anything related to real estate.

Historically the Commercial real estate market trails the residential real estate market by about a year and half. So it appears the CRE slump is right on schedule

Commercial Real Estate next
Nov. 28 (Bloomberg) -- In the bond market, commercial property investors are about as creditworthy as U.S. homeowners with subprime mortgages.

``Commercial real estate is a full-blown bubble that feels very much at a bursting point,'' said Christian Stracke, an analyst in London at CreditSights Inc., a fixed-income research firm. ``There's a fairly toxic mix of factors at work.''

The cost of derivatives protecting investors from defaults on the highest-rated bonds backed by properties more than doubled in the past month, according to Markit Group Ltd. Prices suggest traders anticipate defaults rising to the highest level since the Great Depression, according to analysts at RBS Greenwich Capital in Greenwich, Connecticut.

The seven-year rally in offices and retail properties ended in September when prices fell an average of 1.2 percent, according to Moody's Investors Service. Banks worldwide are holding $54 billion of unsold commercial mortgages, according to data compiled by New York-based Citigroup Inc. that includes fixed and floating-rate debt.


SUMMARY/WRAPUP:

Growth in LV has been absolutely phenomenal over the last decade--a decade of prosperity driven by cheap credit (both business and personal) and rising asset values, creating a consumer wealth effect and influencing a carefree lifestyle. People (both local and tourist) had lots of cheap, easy money and access to huge credit lines if they needed more to spend in the City of Sin (all in the name of having a good time and living for the here and now). That is however coming to an end! Credit has started to dry up, (right now it is mainly influencing mortgage credit--months from now it will impact a myriad of other areas—Commercial credit, Car loans, Credit Cards, etc) and the huge party bills are coming due.

As stated in previous posts, Las Vegas’s economy has been completely dependent on the discretionary spending of vacationers (Airlines, Hotels, Restaurants, Shows, Gambling, Drinking, Strip Clubs, etc) and the city lacks any real or substantial diversification. When tourism & discretionary spending finally start to decline (due to National negative savings rates, rising inflation and falling home values), gaming revenues will drop, hotel occupancy rates will fall, and thousands of layoffs will follow.

Those locals who find themselves unemployed will quickly find that they have very limited options, as the entire hotel & gaming industry will be feeling the same economic pains. The lack of industry diversification in the city will be a killer!

Currently, with housing values falling, the wealth effect is under strain and many people are having difficulty understanding what has happened to the housing market, while most are still holding on to the false hope it will recover somewhat quickly. In the meantime, these folks have a mortgage that must get paid, all while coping with higher gas, food prices, tuition, insurance, energy bills, etc. Many are already strained to the max and the black hole of upcoming teaser rate mortgage resets will finally set them over the edge. (Note: refinancing will not be an option for those who have purchased within the last 3 years because they are already underwater; additionally many who have owned for decades used the cheap rates and housing boom to extract available equity--to live beyond their means; so they too cannot refinance). This same problem is beginning to impact millions from across the nation!!!

Additionally, the home ATM machine that people used to draw money out of regularly has finally dried up, so they have ended up resorting back to the credit cards (the same ones they paid off with that home equity line of credit last year) just to make daily ends meet. This is going to end horribly!!!

BOTTOM LINE: When tourism starts to wane, due to people running out of discretionary cash, gaming/hotel industry layoffs will follow, cascading the impacts of the already doomed Valley housing market, as more locals will be unable to meet their monthly mortgage obligations. Reduced spending levels, increasing layoffs, magnified home foreclosures and tightening credit conditions will cause a doubly painful domino effect on the Commercial real estate market and in due time, the impacts will be extremely painful to the entire economy. State Tax revenues will tank, crys for budget cuts will prevail and the government layoffs to follow will only exacerbate/compound the situation.

I think one of my readers summarized the situation best: “ Las Vegas lives off the margin. Good times, fat margins; lean times, no margin. LV has no plan B, there's nothing to take up the slack from a decrease in visitor volume. Even dollar rich foreigners aren't going to hold up employment that is based on a volume service industry and housing construction.”

Guess only the future will tell...

Regards