Analyst recaps bungled housing predictions of yesteryear

By Buck Wargo

Monday, Jan. 31, 2011 | 3 a.m.

Larry Murphy and other housing analysts and economists have gotten plenty of criticism for their forecasts over the past two to three years, and rightfully so. Their predictions were wrong about the Las Vegas housing market and how far sales and prices would fall, and they admit that.

It had gotten to the point where I once used a tag line in my column or article pointing out that they have been off in their forecasts. I haven’t had to do that in the last 18 months the housing market has stabilized to some degree.

Their forecasts about the market’s recovery have gotten more pessimistic, and they admit they change their minds based on what’s occurring in the marketplace.

A year ago, Murphy told the Las Vegas Sun that prices hit bottom and it will take a year before there’s upward movement. At his recent Crystal Ball seminar, he said prices are going to stay flat for a couple of years and it may take five to six years to see any big increase — and even that’s only a $30,000 gain from existing prices.

Murphy ran through the list of predictions made by Las Vegas analysts over the years and asked his audience to guess who said what.

He pointed out one analyst about four years ago said the $100,000 home was on the endangered species list and will be extinct the following year.

Murphy admits it was he who missed that one, with 28 percent of the homes sold in 2010 priced under $100,000.

One local homebuilder said in 2005 that it wasn’t a good time to sell his business. That was Richard Plaster, president of Signature Homes and a speaker at the seminar, who has said he has no plans to build any homes in Las Vegas.

“If he (sold the business) he would have a vacation home in Italy and Greece and be sailing on a yacht,” Murphy joked. “Instead, he has a vacation home in Pahrump and Bunkerville.”

Next, Murphy turned to the quote about four years ago that said no new single-family homes would be built in Las Vegas in 10 years and that the focus would be on vertical living.

“The next high-rise condo won’t be built for 183 years based on current absorption,” he joked, crediting the quote to housing analyst Steve Bottfeld, who was also at the seminar.

Murphy asked the audience to guess which analysts said about four years ago that Las Vegas would run out of land to build on in eight to 10 years, which as he said isn’t the case since building has stopped. It was housing analyst Dennis Smith, president of Home Builders Research, and Richard Lee, first vice president of First American Title, who was in the audience.

Murphy cut them some slack, however, saying the prediction was based on the existing rate of construction.

Last, Murphy turned to a prediction made in 2007 that Las Vegas would have a shortage of housing by 2009. That was a report done by Applied Analysis principals Jeremy Aguero and Brian Gordon on behalf of the Southern Nevada Home Builders Association.

Some analysts at the time the report was released questioned its accuracy. Doubters were proven correct.

“My point is we always said that things didn’t turn out as expected,” Murphy said. “We can’t be too hard on ourselves. If someone has the insight to know and has not made a mistake in his forecasting ever, then I would like to meet that person. To my knowledge, he doesn’t exist.”

Murphy’s backward view prompted me to look at previous comments in print made by analysts in 2006 when I took over the real estate beat for In Business Las Vegas.

I found a comment from Murphy in the July 28 issue about new-home median prices that were $337,250. The median price for 2010 was $206,844, a $130,000-plus decline.

“The message that new-home prices still going up in Las Vegas flies in the face of the bubble conspiracy theorists,” he said at the time. “There never was a bubble, and there isn’t a bubble now. We don’t see a bubble in the future.”

Bottfeld made similar comments for the Aug. 25, 2006, issue:

“The thing that bothers me is that some people keep screaming bubble, but this is no bubble,” Bottfeld said. “We are in a rough period, but as far as a bubble is concerned, there isn’t one. If you look at resale prices, they are at an all-time high. If there was a bubble, they would have fallen apart.”

As a reporter, I didn’t make predictions but I chose stories and a tone based on what I thought was happening and was going to happen. Some people think the media were cheerleaders in the process and weren’t skeptical enough.

I think as a national media, we did a poor job of forecasting what was to come and prepare people, but our publication gave insights of what was to come even though people may not have believed it. I remember taking heat from real estate agents for being too cynical and downbeat about the future of the housing market.

We published reports by housing analysts and firms who predicted large double-digit drops in home prices in Las Vegas and had the local analysts comment on it. We didn’t ignore those housing doom forecasts.

Some of our stories in the second half of 2006 that shed light on the coming market that proved to be correct:

• Sept. 22 — “Builders drop land options.” It wasn’t based on any report, but an enterprise story on the housing market softening and builders backing out of land deals. They had already worked to offer incentives and cut prices to lure buyers.

• Oct. 13 — “Foreclosures just tip of the iceberg.” This story was written at a time the national media weren’t focusing on the coming foreclosure problem. It said that although foreclosures remained low, they were starting to increase because of mortgages resetting and declining home values. It said the foreclosures would prompt a decline in prices as lenders sought to sell them at discounts.

• Oct. 20 — “Home-loan fraud jumps.” A prescient enterprise story detailed how investigators were uncovering fraud that contributed to a run-up in the housing market before the issue got national attention.

• Oct. 27 — “Market is tough for new real estate agents.” The idea was that agents who aren’t experts wouldn’t fare well in the coming market.

• Oct. 27 — “Retail, industrial, office developers could face problems.” Demand remains strong, but the future may not be so bright with a glut of space coming online, the story said.

• Nov. 10 — “Builders bank on bounce.” Homebuilding industry executives painted a bleak picture for the nation’s housing market.

• Nov. 24 – “Housing slowdown cools holiday retail forecast.” The decline in the Las Vegas housing market affected retail spending.

• Dec. 22 — “Housing outlook still grim.” Foreclosures were predicted to grow in 2007 because of the heavy use of exotic mortgages in Las Vegas. It mentioned national analysts calling for double-digit price drops in Southern Nevada home prices, and Lee said existing home prices would fall at least 15 percent in 2007, one of the first local analysts to suggest prices would decline substantially.

Existing home prices have fallen nearly 60 percent since the peak in June 2006.

More predictions

So now it’s time to give more predictions and see who’s correct.

Las Vegas home prices won’t return to pre-recession levels until after 2032, according to Moody’s Analytics. The good news is that’s better than Phoenix, which won’t improve until 2034, the firm said. None of the prices is adjusted for inflation, and Celia Chen, Moody’s Analytics housing analyst, told CNNMoney.com that the economies were tied to residential construction and with housing oversupplied, it will take awhile for that part of the economy to recover.

Chen cautioned the predictions could be off, based on the economy.

A North Carolina research firm, Local Market Monitor, told Forbes that Las Vegas is among the cities where home prices will fall in 2011. The firm projects prices will decline by 5 percent over the next 12 months, but increase slightly in 2012 and 2013.

Las Vegas drew a “Frankly Dangerous” ranking from Local Market Monitor, which is the worst possible rating, CNNMoney.com reported. The publication questioned whether it’s possible that Las Vegas can be the most undervalued markets in the nation but still one of the worst housing buys.

The firm said the $145,000 median price it puts on Las Vegas is 30 percent less than fair market value, but it downgrades the city because of its jobs picture.

But Business Insider reported JPMorgan says there’s slightly higher optimism and stability in Las Vegas. It’s bullish on the city’s housing market despite the nation’s highest rate of foreclosure and negative equity.

The bank has upgraded its Las Vegas outlook to neutral, while Phoenix remains slightly negative, Business Insider reported.

“JP Morgan says declines in new-home prices have stabilized, even if they are selling at a significantly higher premium to resales than the historical average. Likewise, inventory appears to have stabilized in September, even though it’s up year-over-year,” the report said.

In other news

• Trulia, in its quarterly Rent vs. Buy Index, said Las Vegas and Miami were the two best cities where it’s better to buy than rent, given the price declines prompted by foreclosures. Renting was cheaper in four cities — Kansas City, Mo.; New York; San Francisco; and Seattle.

• An affiliate of Bixby Bridge Capital of Illinois sold 93.5 acres in the Mountain’s Edge master-planned community to Richmond American Homes and Pulte Homes for $14.3 million, said Michael Stuart, vice president of the land division for Colliers International Las Vegas. The property at the northeast corner of Bermuda Road and Starr Avenue will have homes built on it within a year, he said.

• Panorama Tower North has changed its name to the Martin. The 45-story condominium tower is under separate ownership from the first two towers at Panorama.

• Dakem & Associates has completed the renovation of the former Furr’s Cafeteria into the new DaVita West Las Vegas Dialysis clinic, 150 S. Valley View Blvd. at a cost of $1.6 million. SH Architecture did design work on the shell building improvement while the tenant improvements were designed by KC Design & Architecture.

Buck Wargo covers real estate and retail for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at [email protected].