Summary
May housing data strongly suggests that Las Vegas will experience a bottom to the residential recession in the 2nd quarter of this year.
Analysis
There are four reasons for that conclusion:
<!--[if !supportLists]-->1. <!--[endif]-->EXISTING HOME SALES CONTINUED TO EXCEED THE CREATION OF FORECLOSURES: May was the third consecutive month in which the number of foreclosures purchased exceeded the number of foreclosures created. In our mind, that is the beginning of a trend. The impact created by the end of the foreclosure moratorium on March 6 may interupt this trend later this summer. But, the trend now looks solid.
<!--[if !supportLists]-->2. <!--[endif]-->SALES CONTINUE STRONGLY: May marked the 17th consecutive month of increasing existing home sales. May’s 4,476 existing home sales were a 66% improvement over the same period last year and a 10.2% improvement over April’s sales.
<!--[if !supportLists]-->3. <!--[endif]-->INVENTORY IS AT THE LOWEST POINT IN MORE THAN THREE YEARS: At current sales rates, the 13,667 available listings – the lowest since January 2006 – represents just 4.3 months of supply. A “hot” market is defined as one with 3 months of supply or less. Financial institutions now sit on approximately 14,000 REO’s and will certainly add more in the near future. We strongly suspect that it is in the best interests of the financial institutions involved to be judicious in the number of REO’s they release each month.
<!--[if !supportLists]-->4. <!--[endif]-->EXISTING HOME PRICES SLID JUST 2.4% LAST MONTH. That’s the smallest decline since March 2008 and a hopeful sign for the future.
Here are the details:
Existing home sales and foreclosures were the dominant statistics for May, as they have been for the last several months. But, now supply is edging into the picture.
For the 17th consecutive month, existing home sales improved. Almost two thirds of the existing home closings (64%) in May were bank owned homes (foreclosures) with a median price of $106,000. The balance was non-bank owned homes with a median closing price of $140,000.
The number of foreclosures in May was 1,769, a 26% decrease from last year, but an increase over April.
PRICING HOLDS BACK NEW HOMES: The new residential market which suffers a distinct pricing disadvantage hasn’t let the starting gate … and won’t until there is less of a price discrepancy. Currently, the average price per square foot of a new home is $106.59. Compare that to the average price of an existing home: $77.41.
That’s one reason why May’s new home sales remained in triple figures (383, an increase of 25 units over April). The median price of a new home sold was $211,489, a drop of 2.4% from April. The minimal drop in price echoes what is happening in the Existing home segment of the market.
New home inventory is also in decline. There were just 298 new home permits “pulled” in May. And, the number of new home communities slid to 300 – a 48.2% drop off the peak of 579 recorded in July 2007.
The question now is not: When will Las Vegas hit bottom? The question now is: How long will Las Vegas stay on the bottom?
Looking back, we should be able to say that the second quarter was the bottom of this cycle for Las Vegas residential real estate.
But, hindsight is always 20/20.
