Feb102016

A housing bear mauls Las Vegas

House prices should continue to rise in Las Vegas as cloud inventory supply restrictions and undervalued conditions persist.

Back in 2010 when house prices were crashing, I advised people to buy Las Vegas real estate because I believed it was a good value. With house prices at 1995 levels, even if they fell further (which they did), it only made good deals even better.

clark_county_median_home_price_1991-2011

House prices rebounded strongly in early 2012 due to the manipulation of supply, but despite the strong house price rally, the market is still undervalued.

LV-Case-Shiller-2016

One of the problems with long-term price charts is that straight-line technical analysis often understates the appropriate support or resistance levels. If the same data is plotted on a logarithmic scale, the degree of undervaluation is even more significant.

LV-Case-Shiller-2016-log-scale

Though the rate of home price appreciation will slow down, with the cloud inventory supply restrictions and improving economy, I expect house prices to keep rising steadily.

Not everyone shares my view.

Not Leaving Las Vegas——Housing Bubble 2.0 Popping Again

by Mark Hanson • January 31, 2016Las_Vegas_foreclosure

… Vegas is a fun market to analyze. That’s because it is a hybrid of end-user, fundamental, shelter buyers and the most speculative buyers around.

  • Single-family Residence (SFR) sales down 13% YoY, at 7 year lowsdown 39% from Jan 2012, a no uncertain demand crash;
  • Condo sales down 11% YoY, at 7 year lows;  down 33% from Jan 2011;
  • SFR new listings up 10% YoY;  Condo listings up 30% YoY;
  • SFR month’s supply at 1 months, up 8% YoY, a 4-year high;
  • Condo month’s supply at 7.7 months, up 19% YoY, a 4-year high
  • Available SFR’s WITHOUT offers up 13% YoY;
  • Available Condo’s WITHOUT offers up 36% YoY;
  • Average Condo list price of available units WITHOUT OFFERS up 143% (Another condo bubble!)

That data sounds ominous, but is it correct? Not that realtors have much credibility, but they report very different numbers:

Las_Vegas“GLVAR said the median price of local condominiums and townhomes, including high-rise condos, sold in December was $117,900. That’s up 12.3 percent from one year ago. … Compared to the previous year, 20.4 percent more homes and 20.0 percent more condos and townhomes sold in December 2015. … GLVAR tracked a total of 3,094 condos, high-rise condos and townhomes listed for sale on its MLS in December, down 5.7 percent from one year ago. … For condos and townhomes, the 2,091 properties listed without offers in December represented a 9.4 percent decrease from one year ago.”

Las Vegas realtors report exactly the opposite of what Mark Hanson reports. If his data is wrong, every conclusion he draws from that data is equally wrong.

Bottom line:  They kept building and building ever more expensive condos until suddenly, over the period of a few months, the market crapped itself.  This, at a time when foreign currencies buy far less than a year ago, supply is through the roof, and more supply is in the development stages pipeline than since 2006. This is 2007/08 all over again.

Is it really 2007 and 2008 all over again? By 2006, Las Vegas was ridiculously overvalued. Now in 2016, the market is undervalued. There is almost no parallel between the two.

3)  End-user, shelter demand…NO “RECOVERY” YET

And if end-user housing demand won’t manifest and keeps hitting low after low with rates at 3.5% — and a backdrop of a “robust labor market, strong economy, and the greatest increase in debt known to mankind” — then it never will.
Bottom line:  After so many years and demand continuing to contract, it’s time to call a spade a spade. That is, there has been no end-user, shelter-buyer, fundamental “housing demand recovery”. Simply, a “house price recovery” in the absence of robust demand, which was created by everything other than end-user, owner-occupied, fundamentals.  This is evident in virtually every corner of the US.  What makes this “price recovery” so unusual and suspect is that price is a “symptom” of demand and real, durable house price appreciation can’t sustain without it.

I made similar statements two years ago, but that was then, and this is now. Unemployment is low, wages are rising, and the economy is strengthening. The demand from end-user, owner-occupants is improving.

4)  This bubble just popped.  Below are data from the Jan 2015 GLVAR report released this week.  Wild YoY volatility. Just like in 2007/08.

Bottom line:  In a “normal” market, prices are a “symptom” of demand and supply and cannot sustain gains or a counter trend indefinitely.  As such, based on supply being back to between 7 and 8 months and sales being at 7-year lows, prices have to be feeling a ton of gravity.

VEGAS-DISASTER-JAN-2015-2

Disclaimer.  I love Las Vegas.

How did conditions change so radically from December when the GLVAR reported the market was strong?

Regardless of what short-term fluctuations may occur in the Las Vegas housing market, the long-term forces are positive:

  • House prices are undervalued.
  • Cloud inventory supply restrictions remain in place.
  • An improving economy creates jobs and wage growth.

While the economic outlook may be volatile as interest rates rise, the undervalued condition and the cloud inventory restrictions will remain in place. House prices will continue to rise.

SecretsToLasVegasLandBaron

[listing mls=”OC16023983″]