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Building boom in Las Vegas? Not so
Condos included in firm’s analysis inflate number of new homes
Tuesday, June 1, 2010 | 2 a.m.
Sun Coverage
A New York Times story notwithstanding, Las Vegas is not in the midst of a new-home building boom.
The May 16 story in the Times raised eyebrows within the Las Vegas housing industry for reporting that building was booming in a city of empty houses. The article said, “there are 9,517 spanking new houses sitting empty,” and yet builders are putting up 1,100 homes and buying lots for even more at a time lenders are foreclosing on existing homes.
“Las Vegas is trying to recover by building what it doesn’t need,” the article said. “It is an unlikely pattern being repeated in many of the areas where the housing crash was most severe.”
That would be a correct assessment if local builders were overbuilding, but they’re not, according to analysts who follow the Las Vegas housing market. The market for building single-family homes has been slow to recover because the median price has been more than $80,000 higher than existing homes.
The source of the numbers used in the Times article, Texas-based Metrostudy, a housing research and consulting firm, told a Sun reporter that the 9,517 new houses sitting empty include 215 in Pahrump and some in Northern Arizona, which are in the Las Vegas metropolitan area. But only 1,017 of the total are single-family homes in Las Vegas. The other 8,285 are built and unoccupied condominiums and condo-hotel units at places such as CityCenter, Trump International and other high-rise developments on the Strip and downtown.
The analysts agree that those units are not competing against the single-family home market in Las Vegas and can’t be lumped in that total. And the inventory of existing homes has dwindled to less than a three-month supply.
Gregg Gross, director of Metrostudy for Las Vegas and Northern California, said Las Vegas was overbuilt, and builders had 10,516 homes under construction in the first quarter of 2006 when the market started falling.
By the end of 2007 and the beginning of 2008, construction slowed dramatically as builders focused on selling existing inventory.
That is evidenced by new-home permits tracked by Las Vegas-based SalesTraq. Builders took out 30,149 permits in 2005, 20,999 in 2006, 12,836 in 2007, 5,551 in 2008 and 3,776 in 2009.
Activity has picked up this year, but the 1,918 permits through April are less than 500 a month on average — hardly classified as a building boom by historic or any other standard in Las Vegas, analysts said. It’s more like a slight rebound that might be attributed to the $8,000 first-time homebuyer tax credit, they said.
“Even though there are 1,000 (empty new homes), that is not much supply,” Gross said. “They are managing their levels. They are not overbuilding. That is about a 2 1/2 month supply. Construction of new homes is definitely not booming.”
Strip condos can’t be compared with new homes because prospective buyers of single-family homes in Las Vegas aren’t considering them, Gross said. Those condos are geared for second homes or investments, he said.
But even the 1,000-plus new homes sitting vacant can be considered overstating the inventory.
That total includes homes under contract for buyers who have yet to occupy them. In addition, that number includes model homes, and according to SalesTraq, there are 850 model homes as of the most recent count.
When not counting homes under contract, Dennis Smith, president of Home Builders Research, another housing analyst, said Las Vegas has 300 to 400 new homes sitting vacant.
Gross said the last thing homebuilders want to do is build homes that sit empty. They are building based on demand because it is expensive to have money tied up in a home. They may be paying interest on a construction loan, or the corporate office from which they borrowed the money is charging them, he said.
Many builders, especially smaller private ones, have remained on sidelines for the past year or two because they can’t obtain construction loans or can’t compete at the current price level, analysts said.
It’s unrealistic for every builder, even the large public builders that are doing most of the building, to remain on the sidelines. That’s because some people want a new home in a particular style or location and don’t want to buy a foreclosed home or existing home that requires repairs.
“Builders have to build houses to stay in business,” Gross said, citing their overhead and land costs. “They are not building houses to build houses. It is based on demand.”
Smith said his biggest concern is appraisers might be influenced by the Times article, and that would prompt them to lower prices even more and make it difficult for buyers to finance homes for their full cost.
“There are some builders who are upset because that article put out some bad information about Las Vegas,” Smith said. “They are tired of bad news. If it is bad news, it better be right.”
A version of this story appears in this week’s In Business Las Vegas, a sister publication of the Sun.
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maybe someone with a vested interest?
one thing they are right with, the city of empty homes is very true there are many empty houses on the banks books, seems more and more people are leaving vegas, I really think anyone who is investing in buying houses now needs their heads testing, clearly they are not sane and will be badly stung, prices have a long way to go down. the next set of rate renewals is about to hit.
Every ugly social and economic hardship Las Vegas used to effectively avoid, has materialized and continues to grow in scope thanks to corporate greed and ineffective government.
Here's a set of figures.
Make what you will of them!
Lies, Damn lies, and statistics.
It is amazing how two sides can take a set of numbers and come up with 2 different figures.
I guess if you're a writer, you are expected to do research... remember research, kids? Fact finding, fact-checking, who, what, when, where, why and freaking HOW; it ain't rocket science, but kids today, right? L A Z Y.
The unvarnished truth is that Las Vegas is A LONG WAYS AWAY from having a "recovered" housing
market.
Both sides are fudging the numbers here.
SHOCKING, I KNOW!!!
If you want fuzzy numbers, kids, I suggest you call Gov'ner Gym Gibbons for advice: He has himself LEADING the Republican field for his job in a new "poll"!
Now THAT is the epitome of LIES, DAMN LIES, AND...now you're just making stuff up.
If anyone on the street approaches you about buying a house,
remember this; They are likely misrepresenting something.
I agree with you gmag39...they have to be fudging the numbers. Perhaps that to make things look a lot better than they really are in our eyes.But the fact remains...one just needs to open their eyes and look outside,walk around.Lets face it,they can't hide this mess no matter how hard they try,it's bigger then even them.
builders are better off taking a year long cruise on an ocean liner and checking back in spring 2011. the market is dead in vegas and elsewhere.
markp said: "prices have a long way to go down."
------------------------------------------
Actually if you look at real statistics of sold (not listing price), etc in Las Vegas, prices have been wallowing in the same $1500 range since the beginning of the year. They are no longer plummeting, just going up and down a little here a little there without any real movement either direction.
Sales are being bogged down in short sale forever land where it is still taking 6-8 months for someone to close on a short sale.
Just like so many screamed about how the prices would rise forever, we now have a similar type of group saying they will drop forever.
Just to reiterate past posts I have made concerning Metrostudy's reported numbers. There is not a single statistical number presented. Metrostudy's count of inventory is a visual inspection of every unit. The 2.5 months of supply assessment is a simple calculation that based on the last 12 months pace of occupancy (not just closing) of new, never lived in homes...if there were not a single new construction unit added to inventory...there would be no NEW CONSTRUCTION, never lived in homes remaining.
These numbers don't take into consideration resales at all...just new construction.
fwiw...my counsel to a number of builders back in 2006 - 07 was not to dissimiliar to "dipstick's" counsel. However, as counter-intuitive as it might seem today. The current lot supply in Vegas has diminished to a level that it will be difficult to maintain the current deflated production rates in Vegas without the addition of new lots.
You can click here if you want more specific insight into Metrostudy's assessment of the Las Vegas new construction market: http://www.metrostudyreport.com/?cat=33
VegasResident
what makes you sure they wont drop any further, all the signs and the news point to a very severe drop in prices coming soon
There's still a ton of SPECULATING going on here.
Banks are holding lots of inventory and investors are buying up short-sales and repo's right and left, then renting them out.
Factor in another bunch of foreclosures and what do you have?
WHO KNOWS???
A lot depends on demand, of course. Actual demand from actual homebuyers who actually plan to live and work in Las Vegas. That won't settle in until the economy levels out and we see how many homebuying jobs the economy can sustain.
The way it's going, the jobs available to the masses are not
jobs that people can afford to buy and maintain houses with.
All the salary and benefit cuts and job losses have knocked down the median family income.
If someone GIVES you a house, and you cannot afford to maintain it properly or pay the big utilities, it ain't much of a deal.
Markp makes a great point. One of the things I have learned as I get older is that many people have an opinion based only upon their interest and benefit from a situation. These opinions are definitely biased. If I am buying a business of course they are going to say that things could not be better. No wonder the older you get the more cynical you become.
@VegasResident-
There used to be this little thing called a homebuyer's tax credit that was really helping motivate sales. It's gone now.
You'll be hard-pressed to find a single economist who doesn't think we're headed for some serious inflation by the 4th quarter of this year, most notably Roubini. If you know a thing about economics, then you'll know what inflation does to interest rates, so... if you've just taken away a tax incentive to buy, and higher interest rates are looming, and prices have been relatively static despite strong upward trends in sales (which usually drives prices up), what do YOU think is the likely scenario vis a vis the value of homes in Las Vegas?
Right on Markp, there will be another big drop in housing prices nation wide. We are in big trouble with our crazy national debt, IBD reported that we are now spending $2 dollars for ever $1 we take in, how long can this go on? Bush and Barrack buried us in debt. Is there anyone out there that sees away out of this?
@VegasResident-
There used to be this little thing called a homebuyer's tax credit that was really helping motivate sales. It's gone now.
VegasResident
what makes you sure they wont drop any further, all the signs and the news point to a very severe drop in prices coming soon
------------------------------------------
As far as home buyers credit goes, since a majority of the foreclosure sales have been to investors, this has very little effect. Second, if oyu check with new home builders they have instituted their own additional $8000 credit.
Markp: What signs point to a sever drop? Please do not include news stories as the news also pointed to a forever rise during the boom so news is not valid. My data was from statistics.
Hack: Real Estate is local so you have to disregard a "national Drop"
Gmag said: "The way it's going, the jobs available to the masses are not jobs that people can afford to buy and maintain houses with".
Actually you are wrong. Las Vegas is now considered extremely under priced with prices dating back to 1998. Houses are affordable again to those in the service industry that SHOULD BUY HOUSES. Please do not consider affordability to the masses a good thing. Making all loans affordable to anyone is what caused the artificial run up in the first place.
I have been tracking actual sales statistics officially released (sold/not listed, inventory, etc) for the last 6 years through the up and the down and that is where I am drawing my opinion on the further declination of prices.
The new home builders are generally building on contract. The foreclosure current inventory is approximately 20 days with banks eeking out their supply (which causes the price stagnation).
Personally based on all the stats, we will probably see a price stagnation for a few years and not this cliff drop that others have stated with no backup data due ot new builders not flooding the market and banks not dumping their supply all at once either.
"and prices have been relatively static despite strong upward trends in sales (which usually drives prices up),"
"You'll be hard-pressed to find a single economist who doesn't think we're headed for some serious inflation by the 4th quarter of this year, most notably Roubini. If you know a thing about economics, then you'll know what inflation does to interest rates, so"
------------------------------------------
A strong trend up due to high sales is a normal market characteristic. A foreclosure market characteristic with banks eeeking out their inventory is a stagnant price.
As far as inflation, very low inflation may do more harm than good. Empirical research is far clearer about the harmful effects on output once inflation is in double digits and not single digits which is what we would probably see. Based on historical data, if the expected inflation rate rose by a notch or two, wages and interest rates would shift up to match it. The higher rates required in normal times would create the space for bigger cuts during slumps. In principle a modest dose of controlled inflation might work wonders. In practice, however, it may be hard to achieve and the benefits may not be quite as obvious. So I guess it depends on how much we get.
From what I have seen and heard RE Brokers are still in the bubble mood mentality.
Anyone even remotely familiar with and honest about the current Vegas housing market would all reply " Do what?..building boom?..here?..now? " in response to the Times article. They must be sniffing the ink ..or something..at the Times. Or there is some ulterior motive of which we're unaware...
Cheers...
Vegasresident
so you are basing your assumptions on your own data, not exactly clever, when you have to look at this
1) interest rates go up = increased mortgage payments stress already stressed people
2) banks hold huge amounts of empty property at some point they will need to release this onto the market
3) government debt is now at the tipping point
4) money flow is well below what it should be for a stable economy
5) unemployment is still increasing
6) unemployment is not counted the way you expect, people drop off the radar after a certain time point, therefore the unemployment rate is somewhat higher
7) more people have been forced to change their job to part time
8) Austerity measures will have to come into effect at some point, you can't keep borrowing and not paying it back
there are some facts for you, now explain why you think prices will remain stagnant or rise?
Maybe a degree in economics might help you, better start college now, by the time you leave you won't have seen an increase in prices.
in this city no construction no future. we are tap out in construction all these empty warehouse will start going into foreclosure
vidiveritas makes a good point. One of the points in the Times article was that people are at work trying to restore the bubble, and get prices inflated again. That's how they make their living. Glam, hype, and pressure sales techniques.