GLG News by Steve Bottfeld

Implications: October's housing statistics may give the Las Vegas real estate community some much needed hope as we head toward the Thanksgiving holiday.  They suggest that Las Vegas may be among the first markets to escape the real estate slump affecting the entire nation.

Analysis:

While prices did not rise in October, they were remarkably close to September levels.  Overall new home prices slid less than $4,000 to $249,000.  The median price of an existing home dipped $2,000 to $184,000.  While neither category rose, both the median price of a new home and the median price of an existing home appear to have reached a plateau.

 

Whether this is a pause before further declines or the precursor to upward movement is yet to be determined.  Nonetheless, it is the first hopeful sign from prices this entire year.

 

The resale market continued its blistering sales pace, reaching the highest point of the year: 3,476 – more than double the sales of one year ago.  The caveat to celebrating that statistic is that 61% of the total were bank-owned homes (median price $166,000).  The balance were non bank-owned homes (median price $217,000 – up from last month’s $210,000).

 

We believe the bottom of the resale market will occur in the month in which the number of bank-owned properties sold exceeds the number in foreclosure. There were 2,454 foreclosures in the Las Vegas market in October.  Bank-owned sales equaled 86% of that total.  In other words, these statistics suggest we may be very close to a bottom.

 

The median price of a new home slipped about $4,000 to $249,000.  While that median price may continue to fall slightly, it is at or very near its’ bottom.  The reason for that conclusion is simple: builders simply can’t afford to sell for much less than today’s pricing levels.  That’s one reason why permits drawn this year have not exceeded three figures in any month and why only 399 permits were pulled in October.

 

One note of caution here:  It is likely that median prices of new homes may continue to deteriorate into the New Year.  However, we strongly suggest that before drawing negative conclusions to that, an evaluation of price per square foot is in order.  Builders are building SMALLER homes in order to get prices more in line with what the market can currently afford.   It appears to us that price per square foot has been relatively similar over the last few months.

 

One difficulty in making any new home pricing evaluation is that new home sales continue to be restrained.  October’s total of 829 sales – down from September’s lackluster 961 – is not impressive.  Still, given the credit markets and the sales environment in October, that total may be considered strong.

 

October inventory figures were a mixed bag.  Existing home inventory inched up 269 units to 21,130.  The number of new home communities continued to slide, slipping under the 400 mark to 395 for the first time since February 2005.

 

All in all, October’s real estate statistics are not cause for celebration.  But, they are the first hopeful numbers we’ve seen all year.

 

Is this the vaunted bottom everyone craves? Time will tell.

 

In the meantime, we wish you and yours the best of the holiday season.

Implications: undefinedundefined <!-- /* Font Definitions */ @font-face {font-family:"Cambria Math"; panose-1:2 4 5 3 5 4 6 3 2 4; mso-font-charset:1; mso-generic-font-family:roman; mso-font-format:other; mso-font-pitch:variable; mso-font-signature:0 0 0 0 0 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-unhide:no; mso-style- September’s housing statistics for Las Vegas are like a Halloween costume.  We can’t quite tell what’s behind the mask.  What complicates our vision is that this data was developed just as economic news regarding the bailout and the further misadventures of AIG, Lehman Brothers and others hit the public consciousness.      Certainly, as the US is battered by an economic system undergoing a frightening metamorphosis, people look for signs that something good may be happening. September housing statistics for Las Vegas provides some good news.  But, there are some tricks among the treats:

Analysis:

 

----->GOOD NEWS: Inventory is down and sales are up. But, the trick is – the numbers may not be painting a realistic picture.

 

----->BAD NEWS: Prices continue to fall.  The treat is they are sliding considerably less precipitously than the first half of the year.

 

INVENTORY: Existing home inventory increased just about 250 units in the month, remaining under 21,000.  The number of new home subdivisions slid to 407, the lowest total since April 2005.  Just 15 months ago, there were 579 active new home subdivisions in Las Vegas.  New home permits remained in triple digits, at just 440.  We expect a little more than 6,000 new home permits for the market this year.  Given that population increase suggests a need for about 25,000 new homes, that’s very good news.

 

----->The number of actual foreclosures -2,272- decreased 20% in September from August’s record high 2839

 

 

SALES: The good news is that sales for both existing and new homes increased in September over August. The total of 961 new home sales in September was a 21.3% improvement over August.  Existing home sales reached 3,199 – the 9^th consecutive monthly increase.

 

----->More than three out of five existing home sales (62%) were bank owned homes.

 

The number of foreclosed homes purchased was 87.3% of the number of homes foreclosed.  We believe the bottom will be reached in that month in which the number of foreclosure sales exceeds the number of foreclosure creations.

 

PRICES: The median price of an existing home slid $13,500 from August to September to reach $186,500 – the lowest median price since January 2004.  Bank owned homes sold at a median price of $175,000.  The median price of a non-bank owned home was $206,000.

 

The median price of all new homes was $252,971 – 19.7% below last year.  That statistic includes mid-rise and hi-rise.  When we look at new single family and condominium, the median price slips to $249,600.  That’s 18.9% below last year. 

 

The final treat:  That last figure has slid less than $10,000 since April.

 

The ghosts of the subprime crisis will continue to haunt the Las Vegas market for at least two more quarters.  But, there is light through the darkness and, in the immortal words of Bela Lugosi, the end is near.

Implications:   As the US is battered by an economic system undergoing a frightening metamorphosis, people look for signs that something good may be happening.   Unfortunately, they won't find it in the Las Vegas August housing data.  Of great concern to economic and market analysts is that Las Vegas housing prices continue to slide.  The caveat is that August data was developed prior to recent economic news regarding such major financial entities as Fannie Mae, Freddie Mac, Merrill Lynch Lehman Brothers, and AIG.   And, September’s housing data will suffer the same shortcoming.

Analysis:

 

Nevertheless, the August  median price of a new home dipped $2,338 (0.89%) from July to $259,847, perhaps signaling that it is reaching a bottom.  However, the median price of an existing home fell $10,000 or 4.8% from July to August, settling at $200,000. Given that speculators –not investors -- are back in the market, the August median may not be the bottom for the existing home market.

 

Why is pricing so important?  Price is the last piece of the recovery puzzle.  Until prices turn around, the Las Vegas financial landscape -- and the country's -- will remain "broken.”  Price impacts not just the housing industry, but every facet of the financial industry – from Wall Street to Main Street.

 

Lower prices have resulted in greater sales in the existing home arena.  Indeed, August was the 8th consecutive month in which existing home sales increased.  And, there is just 7.3 months of existing home supply in the market.  Remember that normal markets are often defined as having six or less months of existing home supply.

 

That's the positive.  The negative is that three out of five homes sold last month (60%) were bank owned homes with a median closing price of $189,000.  The other 40% of existing home closings were non-bank owned homes with a median closing price of $220,000.

 

Last month, Las Vegas experienced an all-time high in foreclosures (2,839).  While July data suggested sales might be minimizing the impact of foreclosures on the market, August data indicates there is still some time left before sales will eclipse foreclosures. In other words, current sales replaced only two out of three foreclosures (68%).

 

One bright spot in the August data was inventory.  Just 485 permits were pulled for 428 new home communities.  The total of 428 new home communities was the lowest since May, 2005.  Existing home inventory remained relatively unchanged from July at 20,623.  However, the number of days on market for a listing has dropped to just over two months (62 days) from 93 days just eight months ago.

 

In sum, August data suggests that the Las Vegas market is moving toward normalcy – at a pace that is somewhat slower than hoped for.

Implications: For the first time in two years, the Las Vegas resale market has less than 8 months of inventory.  If a normal market is defined by six months of inventory, then the resale market in Las Vegas is on the edge of being considered normal. undefined is n----->There is not one person reading this article who believes that last         sentence. The truth is: Nothing in Las Vegas real estate is “normal.”  And, July data accentuates that point.  There’s enough negative news to keep all of the pessimists beating on their alarm drums.    undefinedü  J -----> But, July data also suggests that the Las Vegas market         continues to improve more rapidly than other areas of the         country. Let’s look at the various market segments:

Analysis:

EXISTING HOME MARKET:    The total of 3,173 existing home sales in July was the highest total in any month since September 2006.  July inventory edged up slightly (0.4%) from last month to 20,641. 

Over the last three months, Las Vegas has averaged 2,624 closings per month. Average inventory over the same period was 20,589. Those last two statistics yield a third: there is about 7.9 months of inventory in the resale market. 

More than three out of five (61%) of July existing home sales were bank owned homes with a median closing price of $193,000.  The other 39% were non-bank owned homes with a median price of $235,000.  Overall, the median price dipped to $210,000.

FORECLOSURES:  The number of foreclosures edged up in July to 2,281, an 8.4% increase over June.   
 

<!--[if !supportLists]-->ü  <!--[endif]-->Pr-----> Perhaps overlooked in all these numbers is a simple fact: The total
number of foreclosed homes purchased was about 85% of the number of new foreclosures. 

 
In effect, this means that the market is nearing the point at which foreclosure absorption exceeds foreclosure creation.  That is one benchmark for a market in recovery.

Las Vegas no longer leads the nation in foreclosures.  In  RealtyTrac’s report for June, the Cape Coral-Fort Myers area in Florida was the metro area with the highest rate of foreclosure.  It was followed by three California cities: Merced, Stockton, and Modesto. Las Vegas ranked fifth.

In June, foreclosures were up 8% nationally over the previous month.  Las Vegas’ foreclosure rate dropped.

Examining these foreclosure statistics does not suggest the situation will get better quickly.  Yet, they strongly indicate Las Vegas is on the “mend.”  Assuming we get through the next two subprime mortgage “reset” months with reasonable results, the Las Vegas resale market could be in full recovery before the end of the year.  Certainly, its sales totals will exceed those of 2007.

NEW HOMES:  The new home sector does not look nearly as bright.  July sales were the lowest of the year … the decade … and the century.  Only 731 new home sales were recorded. The average number of sales in the month per subdivision was 1.62 – a tie for the lowest such total in this decade.  The median price of new single family and/or condominium home was $252,990 – 19.7% below the same month last year, but less than a 1% dip from June.

Inventory is the only cause for optimism in the new home market.  The number of active subdivisions in Las Vegas slid to 452.  That’s 21.9% less than one year ago, but still the highest per capita in the nation.  New home permits fell to 688 in July.  That is the second highest total of the year.  However, with the exception of October, new home permits have been in triple digits (under 1,000 each month) since July of last year.

VERTICAL:  The market most impacted by the current credit crunch is vertical.  That is one reason why only 73 Mid/Hi-rise units closed in July – about 10% of total market absorption.  Inventory in this market is virtually impossible to count accurately.  While new homes segment of the market may start its recovery before the end of the year, it is virtually certain that we will be well into the third quarter of next year before recovery begins for this market segment.

People always ask me how to know when we’ve hit bottom.  One answer is: when Las Vegas gets more job creation.  The three hotels that open through the end of the year – Eastside Cannery, Aliante Station and Wynn Encore -- will increase employment by 7,700.  This could balance the employment damage caused by delays in construction of both Echelon and Plaza.

And, yes, that means Las Vegas is on the timid edge of real estate recovery.

Implications: June's housing statistics suggest that the Las Vegas real estate market has entered a rolling "Goldilocks" recovery.  A rolling "Goldilocks" recovery is not hot.  It is not cold.  And, it may not be "just right" for everyone.    Rather, as the existing home market recovers, it will roll the new home market segment into recovery.   Those two market segments then "roll" the vertical market component into recovery. 

Analysis:

EXISTING HOMES:

----->    The Las Vegas resale market is already in recovery. It boasts three consecutive months of sales increases and eight consecutive months of diminishing inventory.  The downward pricing spiral is slowing. 

The 2,979 existing home sales in June were not just the highest total of the year, but the highest monthly total in 20 months.  Almost three out of five existing home sales in June were bank-owned homes.  The median selling price of homes not owned by financial institutions was $225,000 or virtually the same level as last month.  However, because of the number of bank-owned homes sold (median price $203,000), the overall median price of an existing home dipped to $215,000.

Inventory slid for the 10th consecutive month to 20,554 - or at current sales rates, just about nine months of supply.  In other words, existing homes are in a very nearly "normal" market state.  And, the total of monthly foreclosures slid for the first time since November to 2,149, about 300 less than May.

NEW HOMES:

----->    The new home market still has some distance to go before recovery can begin.  It may be approaching the "bottom."

As my previous articles here have noted, a bottom sits on a 3-legged stool.  The three legs are sales, inventory and pricing.  Two of the three legs are slowly straightening -- pricing and inventory.

New home absorption continues to be dismal.  June was the 5th month in this year to total less than 1,000 new home sales.  The bad news is that the 922 total for June brings the first half of the year to a close with just 53% of the sales experienced over the same period last year.  The good news is that sales have not fallen further and have remained relatively consistent on a monthly basis.

Better news is that median prices are fluctuating within a narrow range and may be near a plateau.  The median price of new homes and condominiums was $255,341 in June, just $4,000 under the previous month.

Inventory in the new home arena continues to diminish rapidly.  The number of active new home subdivisions fell for the 11th consecutive month to 460 - and about thirty of those have 25 units or less left to sell.  New home permits totaled 750 this month.  It is important to note that the total number of permits for the year so far is more than 2,500 less than the total number of sales for the year.

VERTICAL

----->    The sub-prime crisis and the rising price of oil have both had a severely negative impact on the industry's vertical housing component.

Only 115 vertical sales closed in June.  Given that several Hi-Rise projects are in the process of closing units, this number is a less than hopeful sign.  And, because those several projects are in a state of flux, it is very nearly impossible to pinpoint the true level of inventory.

The Vertical Component of the market reflects national conditions much more than the other market segments.

What will the impact of high gasoline prices and expected Federal Reserve actions have on the overall housing market?  The answer is that Las Vegas escaped in June, but may not escape over the summer, especially since this is an Olympic Year.

And, during the Olympics, virtually everyone in Las Vegas has their eyes glued to a TV set.  Look for a summer slowdown followed by an impressive Fall.

Implications: May data for the Las Vegas housing market suggests that recovery is underway for the resale market.  Unfortunately, the data clearly points out that recovery does not yet extend into the new construction arena.

Analysis:

May’s existing home sales total of 2,606 was the highest since March 2007.  May was the second consecutive month in which sales exceeded previous year’s totals.  It was also the fourth consecutive month in which existing home sales totals increased.

 ----->It is now probable that 2008 existing home sales will easily eclipse last year's weak results.

 New home sales are still in the doldrums.  Three of the first five months of 2008 have seen sales of 900 or less new homes in Las Vegas.  The 868 total in May is a level not seen in the last decade.  

The difference in sales rates was clearly visible in pricing for each product category. 

The median price of a resale home slipped just $3,000 to $225,000.  Considering that about half of the sales in this category came from purchases of foreclosures, that is a strong showing.  On the other hand, the median price of all new homes sold in the market fell more than $21,000 from April to $269,990.  The median price of new single family homes and condominiums (not including vertical product) slipped $5,000 from April to $249,990.

Inventory levels for resale homes fell for the ninth consecutive month.  Despite a record 2,358 foreclosures, existing home inventory fell to 20,573 – the lowest total since May 2006 (the first month of the current downturn).  At current sales levels, the total represents about 10 months of inventory.  A so-called “normal” market generally has six to nine months of inventory.

The number of  new home permits in 2008 could be less than half of those drawn last year. Although the 621 new home permits in May were the highest monthly total in 2008, the total was 61.1% below the same month in last year.  Nearly 13,000 new home permits were drawn last year.  At the current rate of production, it is unlikely that the market will experience more than 7,000 this year.

That could be one of the underlying reasons why, for the 10^th consecutive month, the number of active new home subdivisions has declined. With a total of 474 active new home communities, the market now features about 100 less subdivisions than at its peak last July. 

May showed marked improvement in one or two sectors of the Las Vegas housing market.  Against a backdrop of surging oil prices, rapidly rising inflationary pressures and some deterioration in the employment picture, the question is:  Is the housing market in recovery or is the recovery limited to only one or two of its components?  

The evidence suggests the recovery has begun.

Implications: To paraphrase Winston Churchill, April’s housing data for Las Vegas could be the “beginning of the beginning.”  undefined·      -----Prices of ALL new homes have reached a yearly high of $291,080 – just 9.3% below last April.  The price differential between 2008 and 2007 has narrowed in each successive month of this year. undefined·         undefined--Sales of existing homes (2.225) boasted the first year-over-year increase since September 2005. undefined·         undefined--At 21,338, existing home inventory is at the lowest point since February 2007.  At current sales rates, that represents just under 13 months of supply. Normal markets are defined as seven to ten months of supply. undefined·         undefined undefined·         undefined

Analysis:    -----<!--[endif]-->Although they reached the highest point for the year, new home permits continued to be counted in three digits (541).  At this rate, 2008 will see about 40% of all the home permits “pulled” last year.
-----Not unexpectedly, sales of vertical housing product reached their highest point this year as well in April.
-----The number of active subdivisions dipped under 500 (485) for the first time in two years.  After reaching a peak of 577 active subdivisions in July of last year, this figure has steadily dropped.  We are now 16% under the peak of the market.

The progress is laudable.  But, if you look underneath the data, there are still significant problems mixed in with the better results.

<!--[if !supportLists]-->(1)   <!--[endif]-->1.  More than two out of five existing home sales (42%) were properties repossessed (foreclosed upon) by financial institutions AND THEN RESOLD.  It’s important to distinguish between a foreclosure and a sale of a foreclosed property.  When we say “sale,” it means just that.  Our sales figures DO NOT include those homes repossessed by a financial institution.  Indeed, that amounts to nothing more than a transfer of title. (We count those as foreclosures).  A sale is a sale, not a transfer of title.

<!--[if !supportLists]-->(2)   <!--[endif]-->2.  While not unexpected, the number of actual foreclosures in the market reached its yearly peak in April.   The April figure of 2,183 was the highest number thus far in 2008.  But, it was well below estimates from analysts outside the Las Vegas market.  While this number may not end up being the highest for the year, it is an indication that the foreclosure problem may be in a much more manageable proportion than previously thought.

<!--[if !supportLists]-->(3)   <!--[endif]-->3.  The “slide” of existing home prices has slowed markedly.  And, while we can call the $228,000 median price relatively stable in comparison to previous months, it is important to remember that two out of five such sales consisted of foreclosed homes sold by financial institutions to consumers.  Indeed, when foreclosure sales are excluded from the data, the median price jumps nearly 15%.

<!--[if !supportLists]-->(4)   <!--[endif]-->4.  New single family and condominium home prices (exclusive of vertical product) are still declining. In fact, you would need to go back to 2004 to find a price that rivaled April’s $255,000 median price.  In part, this is because new home sales have still not recovered (April’s 938 sales were less than March).

However, it appears to us that lower new home prices – and they will remain lower at least for this quarter – will be a stimulus for new home sales.  It is entirely possible that we will return to “normal” sales rates in the third quarter.

 We’ve mentioned in earlier analyses that a “bottom” is a three-legged stool consisting of declining inventory, stable prices and increasing sales. 

April may not be the bottom of the housing market, but it could be -- and I think it is --the beginning of normalcy for the Las Vegas market.

Implications: March Las Vegas housing results can best be described as mildly disappointing. Although prices remained relatively stable and inventory continued decline, surprisingly, sales did not improve significantly. Although sales did not increase in March, there is sufficient anecdotal evidence (increasing traffic, multiple offers on specific properties) to suggest they will increase strongly over the next two quarters.  undefined undefined

Analysis: STABLE PRICES:Despite a great percentage of foreclosures in sales data, existing home prices barely wobbled. The $247,000 median price tag was just $1,000 below February and 13.9% below last year. Overall new home closing prices also slipped very slightly to $276,292, just 10.2% below last March.
Nearly the same result occurs for new home pricing when vertical is subtracted. The median price of a new single family home or non-vertical condominium was $266,135. That's $5,000 below last month, but 16.3% below last year.
Stable pricing is one leg that props up a faltering market.
DECLINING INVENTORY: Available (MLS) Listings reached the lowest point in 13 months, dipping to 22,181. (That is a real positive! ) The number of active subdivisions slid for the eighth consecutive month to 504. New home permits inched up to 423, but that's a 72.7% decrease from last March.
Another leg propping up a faltering market is declining inventory.
SALES REMAIN STATIONARY: Both new home sales and existing home sales reached year-high marks in March. Unfortunately, neither total could be considered stellar. New home sales edged over the thousand mark (1,076) for the first time this year. That's still 40.3% below last year. And existing home sales reached 980 - 62.8% below last March.
There were two bright spots in sales.
The first came from the Hi-Rise market. The 178 vertical closings is the best total since September and may mark some new vitality as Trump, Allure, and Palms Place continue closing activity.
The second bright spot was the average sale per subdivision. For the first time this year, new home communities averaged more than 2.13 sales per month.
LOOKING TO THE FUTURE: The question is: are we on the bottom?
The answer is: Until sales begin to improve, we are. And, sales look like they are on the cusp of upward movement.

Implications: In sports, March Madness starts with the opening “tip off.”  In Las Vegas real estate, March Madness starts with February’s housing stats.  And, those stats are the “tip off” that this market is making progress in its struggle to get off the “bottom.”

Analysis:

A bottom is like a three-point play. It occurs when there is: (1) a reduction in inventory; (2) price stabilization; (3) and sales increases.  Team Las Vegas has tenuously placed two of those three elements “in play” in February.

<!--[if !supportLists]-->1.      <!--[endif]-->INVENTORY CONTINUED ITS LONG SLIDE

Available resale listings fell nearly 1,000 units to 22,837.  It has been nearly a year since the market was on that level (April 2007).  More importantly, current supply represents about 20 months of inventory.  “Normal” Las Vegas markets generally hover between 7-11 months of inventory.

The number of active subdivisions dipped to 517 in February, the seventh consecutive monthly decline and almost 11% below the peak reached last July.  The number of active subdivisions with very limited inventory is well above 30 – so it is not difficult to predict this level will drop rapidly over the second quarter.

Plus, there is very little new inventory dribbling into the market.  New Home Permits inched up to 370 over January’s 358.  Seven of the last eight months have seen New Home Permits slip under the 1,000 mark

<!--[if !supportLists]-->2.      <!--[endif]-->PRICES ARE BEGINNING TO STABALIZE

New home prices increased slightly in February.  The median price of a traditional new home (single family and condominium) increased for the first time since May 2007.  Granted, the price increase to $271,600 was minimal.  But, it was an increase.

When vertical product is added into the equation, prices score higher.  The median price of all new homes also increased, to $283,315.

Existing home prices also bounced up slightly in February to $250,000.  Considering that there are a significant number of foreclosures in that figure, it is a strong showing.

<!--[if !supportLists]-->3.      <!--[endif]-->SALES ARE STILL DISMAL

We can’t drive down the court and score the winning bucket without better sales. And, February’s home sales in Las Vegas were sitting on the bench.

New home closings inched up in February over January, but were still under, 1000 (867).  Existing home closings fell slightly to 901.

Even the vertical market failed to contribute, barely falling below January’s weak showing (78).

But, don’t count vertical out.  The “Buzzer Beater” next month will be vertical closings.  Allure, Palms Place and Trump Tower each had their first closings in February.  They should make a strong contribution to March sales.  And, because of that, March could be the first month to see a year-over-year increase in New Home Sales since July, 2006.

One thing’s for certain: The rest of this year will not be a slam dunk.  But, Las Vegas may be one of the very few cities still in the game.

Implications: The Las Vegas housing industry started the New Year with dismal sales volume, declining inventory and median prices that appear to be in the process of stabilizing.  In view of January’s housing statistics, this year may, in fact, have started with a good news/bad news scenario. The bad news came on two levels: (1) a decline in sales volume for all housing product types; and (2) a record foreclosure level.  The good news also came on two levels: (1) Inventory in every category continues to decline; and (2) prices appear to be in the process of stabilization. In effect, January may be the beginning of the end of the housing slump here.

Analysis:

Yes, new home sales plummeted to their lowest level in this century.  The total of 901 was the worst since the mid 1990’s and a 56.4% decline over January 2007 results.  Worse, it was a 27.9% drop from December’s totals.

Yes, existing home sales also nosedived in January. The 1,061 was 53.9% below last January and a drop of 26.9% from last month’s total.

Even sales in the vertical category declined in January.  The total of 235 was 213 under last January, although this was an improvement over December’s total.

                    HOWEVER, THERE IS GOOD NEWS     

 INVENTORY CONTINUED TO DECLINE:

           1.         The number of new home subdivisions continued to decline for the sixth consecutive month.  Although the total of 525 new home communities is still the highest per capita in any city in the world, it is a 2.4% decline over last month and a 9% decline from its peak last July.  More importantly, there are at least 30 more subdivisions with 30 or less new homes to sell.

            2         The number of new home permits remained almost infinitesimal. The total of 358 in January marks the third consecutive month in which new home permits were less than 400.

            3         Existing home inventory continued a 5-month long decline.  The 23,803 total was barely under December.  Still, it is important to remember than normally, existing home inventory rises in January. The downside to the figure is that it represents 21 months of inventory.

PRICES SHOW SIGNS OF STABILIZING

            1.         The median price of all new homes (including vertical product) in January was $275,000.  While that figure is 18.8% below last year, it is the third consecutive monthly increase.

            2.         The median price of traditional new homes was $268,000, a 19.1% decrease over last January and only a slight dip from  December’s $272,500.

            3.         The median price of an existing home slid to $247,000. That’s an 11.8% drop from last year and a slight dip from December’s $253,000. Yet, when you consider the number of foreclosure sales that impact this number, the figure is much stronger than we anticipated.  (Remember that January saw a record 2,177 homes foreclosed in Las Vegas).
 

I started this brief artical by noting that we are looking at good news and bad news.  The bad news is that I can’t tell you how long this situation will last.  The good news is that we know we are closing in on the “bottom.”

 

Implications: Housing market’s statistics from 2007 showed why Las Vegas builders and Realtors raised their glasses to toast the New Year with trembling hands. Many analysts have already forecast 2008 to be a worse year for Las Vegas than 2007. I disagree.

Analysis:

The total of 19,299 new home sales in 2007 was the weakest in this century, nearly 50% below the market’s peak year in 2005. Existing home sales fared little better. The total of 23,956 was less than half of the halcyon year of 2004 (56.8% below) and 40% below a relatively weak 2006. While descending to levels not seen in three years, the sub-prime credit crunch did not impact prices as badly as sales. The median new home price (traditional and vertical combined) slid just over 20% in the year to $273,359.

Interestingly, December’s median price was a $2,000+ uptick over November – the first price increase since May.

As predicted in July, year-over-year existing home prices faltered 11.2% below 2006 to settle at $253,000 at the end of the year.
----> That last figure is considerably less than what was predicted by Fiserv, Moody’s and a host of other knowledgeable analysts.

Year-end stats gave the market two small, glimmering rays of hope.
A. NEW HOME INVENTORY:
1. The number of new home communities in Las Vegas – the highest per capita in the nation – continued its six month slide from a peak of 579 in July to 538 in December – a decline of 7.1%.
2. In December, new home permits reached the lowest monthly level this century at just 215. The annual total of 12,386 new home permits was 38.9% below 2006. Five out of the last six months, the totals have been less than 1,000.
B. RESALE INVENTORY
1. Existing home inventory dipped below 24,000 for the first time since March. While seasonal factors aided the dip, we suspect that sellers understand market conditions.
2. Foreclosures for the month of December were the second highest total of the year at 989. However, that is a slight dip from November’s all-time high of 1,327.
The reason we call these last statistics hopeful is that inventory tends to be a leading indicator. When inventory falls and prices stabilize, the worst of this downturn will be over.
It's too early to say that has happened. But, if inventory continues to decline in the first quarter, prices will stabilize. And, the Las Vegas market will begin a mild recovery in the second quarter.

At which point, we'll all be drinking with a steadier hand.
And, not so much!

Implications:     The one constant in Las Vegas is change.      Sadly, too many analysts suffer from marketing myopia when they examine change.  They’re like the boxer who can see the jab, but misses the uppercut.      Take a close look at the housing statistics for 2007. They are terrible, no matter from which angle you examine them.  The doomsayer analysts gleefully tell you they are evidence of change in the credit markets or changes in pricing structures which become insurmountable obstacles to purchase activity.     But, that analysis is only partly correct.

Analysis:     That analysis overlooks three changes that underlie the numbers … and powerfully impact Las Vegas’ future. 
    TRANSITION: Las Vegas is in transition from a suburban market to an urban market.  Lack of land and changing demography will make Las Vegas a city of urban villages and mid-rise (and later Hi-Rise).  We are surrounded by BLM land and Native American property.  We have less than 60,000 buildable acres – and we’re eating through them at the rate of 8,000 acres per year. 
    DIVERSIFICATION:  The economy of Las Vegas is diversifying. At the turn of the 21st Century, the resort-gaming industry dominated employment, boasting one out of every four jobs in Clark County.  By last year – barely seven years into the new millennium – that number had slipped to one out of seven.  In the next five years, 40,000 hotel rooms will be added to the “Strip” and the more than 113,000 jobs created. Some analysts say the percentage of resort gaming employment will increase again.  I respectfully disagree. The City has doubled in population to 2 million because employment is diversifying.  There is a dot.com presence here as well as superior medical presence.  The Lou Ruvo Brain Center, The World Market Center – and in 2011 the World Jewelry Center – have made Las Vegas a Mecca for diverse business interests. 
    NEGATIVE ECONOMICS:  Las Vegas has never been immune to economic turmoil – in the region surrounding it, in the nation or in the world.  But, up until now, the resort-gaming industry has insulated this market from the worst of the economic vagaries that damage others.  Not so anymore.  If economists learned nothing else from 2007, it was that the housing industry is indeed a powerful force in this economy.  The health of the local economy is strongly linked to the health of the housing industry here. 
    What does it all mean? It means Las Vegas will begin recovery in 2008 … but will experience the lingering effects of a market that has had more than its share of punches.  
      It means that Las Vegas will have to slug its way back to the top.

Implications:     The housing Grinch appears to be packing his bags this holiday season and getting ready to leave Las Vegas.  November’s housing statistics suggest that Las Vegas may be the first major market in the United States to begin recovery.  It was reported that the Grinch, who has a degree in economics, learned that inventory dropped sharply.  Knowing that inventory is a leading indicator and sales/pricing is a lagging indicator, the Grinch knew that the Christmas bells were tolling for him.

Analysis:      Still, Santa’s delivery of November’s housing statistics will bring little joy to the holiday season, even for good little builders and Realtors.  But, there are a few gifts among the lumps of coal.   
    As expected, annual comparisons of sales and pricing slipped in nearly every category.  But Santa gave an ailing real estate industry a well-packaged gift of significantly less inventory.   
    The one tiny present in the sales and pricing stocking stuffer was new home closings. They climbed 16.7% over October’s results to reach 1,472.   But, that’s 47.5% below November 2006 totals.    
    The impact of significantly lower prices may be helping builders move product.  The median price of a (traditional) new home slid 17.7% (year over year) to $272,405 – a level not seen since September, 2004.    And, for the first time since we began separating vertical and traditional product statistics in 2005, the median price for ALL new homes slipped under the $300,000 barrier to $271,228 – 20.2% below last November.  While that result may seem surprising, there were only 57 “vertical” closings in November, the lowest monthly total of the year.   
    The existing home sales total of 1,523 was a 5.9% dip from October, but   42.2% below November 2006.  The median price of an existing home eased down 1.2% from October to $257,000.  That’s 10.5% below November 2006, and the lowest level since June, 2005.   
    Santa and his elves gave the industry three helpful gifts and two lumps of coal for November. 
    The nicely wrapped gifts included:   
        HOME PERMITS: There were only 343 new home permits in November, the lowest monthly total in this century.  Housing permits have been coming down steadily since the first quarter of last year. 
        EXISTING HOME INVENTORY: Existing home inventory dropped 4.3% from October to 25,981, the lowest total since June.  November marks the second consecutive month of existing home inventory decline.  Before taking this toy out to play, remember that existing home inventory normally declines in the fourth quarter.  But, the fact that inventory is finally following normal seasonal patterns is of great value in assessing the future. 
        NUMBER OF ACTIVE SUBDIVISIONS: For the fifth consecutive month, the number of active new home subdivisions in the Las Vegas Valley declined.  November’s total of to 544 is a 6% decline from the peak of 579 in June.   
    The two lumps of coal in the inventory picture were:   
        SUPPLY:  At current sales rates, it would take 22 months to exhaust current existing home inventory.  We believe that’s the highest it’s been in the last two decades.   Last month, the inventory figure represented only 19 months of supply. 
        FORECLOSURES: November’s foreclosures jumped over the numeric hurdle of 1,000 for the first time.  The total of 1,327 was 400 more than October’s results.   
    Maybe Santa did not have Rudolph guide his sleigh this year.  Or his brother Fred Claus made the deliveries.  Or one of the Elves got the orders wrong.   
    Or maybe Santa gave Las Vegas a gift in these statistics that is not apparent … like a bottom to the market correction!  As the Grinch points out, inventory is a leading indicator.  And, even with seasonality factored in, the decline in Las Vegas shelter inventory is gaining momentum.

Implications:      The NAHB has predicted that the real estate downturn will bottom in the first or second quarter of 2008. Several recent studies have indicated that the balance in housing “fundamentals” may be slowly returning to normal.        These studies concentrate on supply and demand. Virtually all of them correctly analyze supply. Virtually none of them correctly analyze demand.            Changing demand is a major reason why Las Vegas may very well be the first market out of the housing slump. It is also the reason why some major builders may not recover as quickly as the NAHB has predicted.           In the 1980’s, a home entertainment center was required to sell a home. In today’s market, the home must be in the center of “entertainment” to be sold.

Analysis:         Every housing study looks at job growth as an indicator of future demand. Most also identify in-migration patterns as a factor in housing growth. These are correct, but insufficient measures of demand.
        None of them take into account the nation’s changing demography. Simply put, builders are creating product for a market that no longer exists.  Builders continue to create product for the nuclear family in the belief that the American Dream is still that little house in the suburbs with the white picket fence. 
        Actually, today’s American Dream is a home in which the resident(s) can put up the car keys on Friday night and not take them down until Monday morning.
        Here are the simple facts:

    (1 )    The US Census Bureau indicates that  less than one in four of the US  population are in a nuclear family.  
   
    (2)    86 million adults in this country are single.

    (3)    More than half of adult women (51%) are single. And, according to NAR, they account for more than 22% of all home sales. In Las Vegas, Marketing Solutions’ consumer research pegs the figure at more than 30%.

    (4)    Over 40% of women in their childbearing years have no children. That number has been climbing steadily over the last decade.

        The US residential market has been slowly – too slowly – urbanizing. The trend to urbanization encompasses more than a return to city’s inner cores. Even the “suburbs” are being urbanized with what we have dubbed “Entertainment Villages.”
        Entertainment Villages, the next iteration of Urban Villages, integrate more than just retail and residential. These communities recognize the need for restaurants and attractions for residents. After all, since 1965, the US consumer has gained the equivalent ofmore than  two weeks of free (leisure) time. They need somewhere safe and close to spend that free time …and  be entertained.
        Beyond that, the new urbanization trend is a response to builders’ lack of foresight.   For example, consider these three statistics:

    (1)    One third of the American labor force works from home.

    (2)    That includes 16.5% of those who work for corporations.

    (3)    It also includes another 17.2% of those who are self-employed and work from home.

        And, virtually anyone who works in a corporate situation today has a home office. So, ask yourself this question: Why don’t builders dedicate a special small room for a home office in their models?
        Why are we still building kitchens in which no one can cook? 
        Perhaps the simplest offence to overcome is the lack of closet space. Consider this: In 1955 the average American woman owned four pair of shoes. Today that number exceeds 16. Yet, closets appear to be smaller. And, builders rarely offer closet organizers as a standard feature.
        Builders still create a TV niche, although today we have flat screens.  The list goes on and on.
        Beyond subprime and affordability issues, we need to address obsolescence in building design.

Implications: Mr. Burns makes two assumption errors in what is otherwise an outstanding analysis regarding the "near-future" of condominium development. His assumption regarding  attitudes towards HOA's is incorrect ... as is his statement that the Hi-Rise condo market in Las Vegas will succumb to the current economic environment. 

Analysis:     The resistance to HOA's which Mr. Burns assumes in his analysis is a function of both location AND  psychographics.  There is, indeed, a portion of the homebuying community that is adamantly opposed to living in any community with an HOA.  Those buyers are defined not by demographics, but by psychographics.  Such buyers exist in greater numbers  on the east coast of the US than on the west coast.  Moreover, research by Marketing Solutions in the Las Vegas, Phoenix and Southern California markets shows that the the vast bulk of those who are shopping for product  have accepted HOA's  as part of their lifestyle.   
    Mr. Burns is absolutely correct that the investor market is now no longer a factor in the demand for condominiums and conversions -- outside of Las Vegas.  Foreign investors (because of the dollar decline) and second home buyers are still a very strong component in the marketing mix for Las Vegas condominium products (other than conversions).  Moreover, the trend to urbanization -- which is found in both inner cities and in suburbia -- is fueled by changing demography.  Simply stated, we've got to stop building for the family market -- which no longer exists.
    Vertical product -- hi-rise and mid-rise communities -- accounts for nearly one in four closings.  Las Vegas is on its way to becoming an urban rather than a suburban market.

 

Implications: As you know by now, the Federal Reserve Board surprised the financial world with a ½% reduction in interest rates. The impact of that action may curtail the amount of time the Nation will spend mired in a housing slump. Nowhere was this information better received than Las Vegas. There is greater hope for the future because of this interest rate drop and because of August surprises in two shelter industry data elements: Foreclosures; andNew Home Sales/Prices.

Analysis:

In August, the Las Vegas housing market experienced the lowest number of foreclosures this year. Indeed, the surprising 212 figure was nearly 500 under the 2007 peak which occurred in July.

While that is cause for some optimism, it is too early to suggest that the foreclosure rate is slowing. September’s data becomes critical in making that determination.

We urge caution in analyzing these foreclosure numbers because existing home inventory has reached a record high 27,321. And, 46% of those units are vacant. The Mortgage Bankers Association has told us that investors defaulted on one third (32%) of the Las Vegas properties in foreclosure.

Þ Under normal circumstances, we would suggest that the investor impact on the foreclosure picture is waning. But, foreclosure data is not enough. Demand remains weak in the resale sector and appears to be just gathering strength in the new home arena.

While existing home closings totaled 2,390 (34.7% below last August), we continue to see monthly existing home sales statistics trading in a very narrow range. Less than 30 units separate the total sales figures for each of the last four months. That’s usually indicative of a “bottom.” But, until we see upward momentum, foreclosures remain an ugly reality.

The median price of an existing home slipped to $270,000 (6.6% below last August). While that is the most precipitous drop of the year, existing home prices are off only 2.2% through the first 2/3 of the year.

The second surprise in August data was a solid switch from down to up in both sales and prices for new homes. In view of seasonality, August’s 1,928 sales – a 14.2% jump over July -- was surprising. It was still 39.9% behind last year (only the second month this year to be under 40%). Also, the average sale per subdivision increased to 3.39, a 16% increase over the previous month (but still 44.9% below last August).

Led by a powerful surge in mid-rise and hi-rise closings (466 or 24% of the month’s total), new home prices soared to a record $348,896 – a 5.8% increase over last August. If Hi-rise and mid-rise are taken out of the equation, new home prices stood at $309,241. That’s 3.4% above July but 9.8% below last year.<