Las Vegas Housing Weakness Signals the Slowdown Is Spreading
wsj.com
wsj.com
IMO, what's happening in Vegas is that a lot of people who swooped in and bought houses when the bubble burst and trying to become mini-millionaires off of their investments.
Houses that went for $120,000 four years ago are listed for $400,000+ for no other reason than people think they can cash in, and see all the other listings for the same unrealistic prices, and they're trying to "get theirs while the getting is good."
The problem is that they've priced themselves out of the market, since very few people who move to Vegas are tied to the city. They just move elsewhere. So there's lots of houses sitting around with $500,000 price tags on them that aren't being bought because they're simply not worth that much.
I base this largely on three people I know who are currently trying to sell their homes. The person who best exemplifies this is a guy who bought his house for $200,000 in 2014. He's trying to sell it for $459,000 now. Why? No reason. He just thinks that he can get that much for it.
People have to stop using houses as piggy banks.
This is just not true. People don't usually sell their homes to cash in. Selling a house is a stressful, complicated process and it's also very expensive. You can't keep your home listed for long because people will see it hasn't sold. It also involves uprooting and relocating your family, moving all of your belongings and you still have to live somewhere.
The real gambling was 10 years ago. Having had a few relatives try (and fail, in Vegas) to do just this, I'll have to disagree. Watched about $45k in downpayments+fees in each case evaporate as well as the credit scores as they defaulted.
As I mentioned, I personally know three people who typify what is happening. One is a commercial airline pilot. Another is military. The third is an electrician.
The electrician might be the one who would be most typically a "flipper" except that he has no time for that kind of nonsense because he's also a foster parent for Clark County.
Also, Airbnb is illegal in southern Nevada,† with the exception of the Las Vegas city limits, which is a very small area, and not part of the "resort corridor" that everyone knows about.
† http://www.clarkcountynv.gov/administrative-services/Pages/S...
Listing prices are not the only indicator in residential housing. Sale prices can be a more accurate number, and those are also up. https://www.zillow.com/las-vegas-nv/home-values/
It is always a careful balance of asking price and sale price, and is reflective of many different variables: housing supply, population demand, wage growth, job growth, space, traffic, etc. Seller greed is part of the equation, but not the determining factor.
>very few people who move to Vegas are tied to the city
this is true, Nevada does have very high population turnover, but, it is not totally clear that this has a huge bearing on sale prices, this should reflect much more in rent, as those that buy homes are generally committing to longer stays. In the <2 year timeframe, home buying transaction costs and taxes can negate any appreciation, though. If appreciation is high enough, though, then even the transaction costs can be ignored. It is also important to remove people who are simply moving within las vegas into nicer homes, as they may receive benefits that reduce those transaction costs for the sale of their primary residence.
>I'm not an expert on real estate trends, but Las Vegas real estate is not something that should be used as an indicator of anything.
It was a very hard hit area in the last crisis, so it is reasonable to watch its recovery for at least some indications of the state of the recovery from the previous crash, and that recovery should be compared the fundamentals of the Las Vegas economy, relative to the last crash.
When dopey money is able to pursue 3-5x short term returns on real estate, that's the sign of a peak. The hammer inevitably comes down and cleans them out.
My little city is alot like Vegas in some ways. Fueled by tax policy and investor dollars, something like 3,000 luxury rental/condo units have been dumped on a city of 100k. Supposedly, a combination of millennials who don't like houses and downsizing retirees will be renting these things.
They are all half vacant, and the builders, who usually have less than 5-10% invested into the "Tacky Acres Apartment Complex 37 LLC", walk away with profits from construction and tax offsets and leave the the investors with a bag of poo.
In what way is your "wacky" city anything like Las Vegas, which has a huge percentage of renters (vs homeowners), and one of the lowest rental vacancy rates in the United States?
These properties have up to 20 year tax exemptions and are targeted at 90th percentile income in our area.
So homeowners and owners of normal rental property get to carry the tax burden of mostly older wealthy renters.
http://www.city-data.com/top82.html
You've just made up some fictional connection between your town as Las Vegas for karma-gathering, despite there really being no substantive similarities at all.
Sorry if you disagree. I may well be wrong, but internet points don’t motivate me fwiw.
Now this isn't necessarily what will happen, but the relationship between communities and development is more involved than 'development = more resources for the community'.
[1] https://caltopo.com/map.html#ll=36.12923,-115.0639&z=11&b=om... [2] https://www.blm.gov/sites/blm.gov/files/documents/files/SNPL...
Look at an app like FlightRadar24 and see the vast areas that jets have to avoid because so many military installations surround Las Vegas.
Plus, it's the desert. Nobody wants to buy a house without access to water.
Vegas uses very little water. Almost all of the water is cleaned, then recycled back into Lake Mead, where it originated.
The houses are intentionally close together to reduce the number of miles of water lines, and therefore the number of leaks, which every water system has in abundance.
The water you see in the fountains, etc... is not suitable for drinking or other uses because it is groundwater with crazy high mineral content, and ends up back in the ground where it came from. That's why when a drunken frat boy jumps in the Bellagio fountains, the metrocops use a boat to get him out, rather than just swim for him. You don't want to touch most of the fountain water in Vegas.
The vast majority of the water from the Colorado River gets pumped to Los Angeles. Nevada gets a tiny fraction (about 7%, IIRC).
People won't buy a $100k house that's not connected to the sewer/water/grid - especially in a desert.
One of the reasons I was able to get it for $142K was because I made a TON of offers. I basically walked around a housing complex and picked out a handful of identical homes, then made lowball offers on all of them.
Basically there was a TON of supply.
The home was so cheap, it created some bizarre challenges:
1) It was hard to find a lender. Banks don't want to deal with tiny loans.
2) It was hard to find a realtor. Nobody wants to do a deal where they're going to make peanuts on the commission.
I managed to get it all sorted out.
After just 25 months, I sold it. I liked the home, but I just wasn't using it. I'd pictured that my family and I would go to Vegas every few weeks, but we wound up going about once or twice a year. (This was a second home.)
When I put it up for sale, I had two offers the first day it was listed.
In my situation, I think some things that helped a lot were:
1) inventory in Vegas became tighter and tighter, as people are priced out of California. If you're moving from Rancho Cucamonga to Las Vegas, $143K seems like a bargain.
2) Builders in Vegas seem uninterested in smaller homes. The one that I sold was just 1200 square feet. Most homes in the neighborhood were at least as twice as big.
In summary: a classic case of "inexpensive home in nice neighborhood", plus a big helping of luck.
http://cityobservatory.org/housing-cant-be-a-good-investment...
Dollars are created via lending. The largest pool of loans in the US is lending for housing. It's worth about 9 trillion dollars.
When housing prices go down, borrowers walk away from houses and mortgages, and banks with single-digit equity (basically all of them) become insolvent. When banks become insolvent, the economy crashes.
When that happens, the Federal Reserve steps in and prints trillions of dollars to prop up asset prices, and houses (and equities) go back up.
I don't see this changing anytime soon.
while this is somewhat true, i really dislike this perspective. dollars are created from--and first and foremost, represents--labor. whenever i work, i create something of value, and to trade that value for something else of value, i use money to abstract my labor into a uniform medium that is universally recognized and easily tradeable.
it is not some central bank granting me value via a loan, it's my labor granting value to the money.
i'm referring to the federal reserve creating currency (which is a type of debt)--in theory, the fed was created to print precisely enough money to account for the value generated by our cumulative labor, so that we have that well-accepted paper medium to exchange with each other rather than having to barter for everything.
you're talking about consumer debt, which still represents labor, but it's borrowed from others (or from the future). of course when you borrow to buy depreciating assets, that lowers your personal wealth (you're basically throwing away value).
its interest that creates value from capital rather than labor, ostensibly as a reward for risk-taking, but also to account for the time value of money (and its cousin, inflation). this is why the wealthy care so much about interest rates.
Before that, the only financial rationale I recall for buying a house was as a forced savings vehicle and as freedom from rent variations.
But assuming you're not being sarcastic, you should know that the price of a share of stock, in isolation, says nothing about whether or not it is cheap.
Stock purchases are elective, and can be readily scaled down and up based on a person's means. Stocks are highly liquid. They are as affordable as you have discretionary income to purchase them.
Housing is not elective for most people and it can't be scaled down or up anything like the degree to which stock ownership can be scaled. Moving is expensive and hard, as is selling and buying houses, and housing affordability is a function of its cost as a percentage of measures of local median incomes.
that doesn't mean it can't be a safe place to put your money which is not a bad investment actually. For the last 10 years inflation has been beating what a bank can return.
Of course, there's a huge difference between living in your house or renting it out. If you live in it, you're taking a pretty big liability. If you rent it out in a rent to own ratio optimized location, it can be a very good investment and return 6% after all expenses (roughly 4% after income taxes), plus the principle is inflation pegged in the very very long term.
20% is the guaranteed max price he would pay on capital gains tax assuming he's held the property for more than a year, and then he'd have the money in the clear. His "even if..." scenario is not the worst case scenario for not selling.
To me, that was a pretty clear indicator of where that housing market was heading.
I would not be surprised if this was what was happening just on a spread out and wide scale. All home sellers want the price to go up, so if the only way to make them go up is to sell at a higher price, you can prime the pump.
B) they didn't put an appraisal contingency in the offer
Or
C) they think prices are going up and think they can make a quick dollar riding the wave
Unemployment is at record low and USD inflation is next to non-existent.
The real problem to me though is that the fed interest rate no longer reflect reality. Who cares if it's 2% when people are paying 15-30% on their credit cards. If we really wanted to help the middle class, we should tie bank and credit card interest rates to a maximum multiplier, say no greater than 2:1 or something for secured debt, and 4:1 or something for unsecured debt. So a mortgage could only be 5% if the fed rate is 2.5% and a credit card could only be 20% if the fed rate is 5%.
Credit Card interest rates can be 1000%, as long as you pay off your statement balance in full before due date, it doesn't matter (cash advances notwithstanding).
That said, I do think that credit card interest rates are unconscionable and should be capped much lower. As it is, credit card debt is financial slavery and people should treat it like crack cocaine--just say no.
So as an actual investment tool in the short term, housing seems like it could be risky, but if you are looking for a place to put down roots, you would almost surely be coming out ahead.
Las Vegas also has Mount Charleston [1] nearby for when the summer gets too hot.
I have a small acreage near Joshua Tree National Park and it's a lot of fun, plenty of outdoorsy activities and low costs so one doesn't have to waste much time on working. My assumption is that there are similar circumstances to be had in Nevada. We also have a mountain escape nearby in Big Bear for when it's hot.
[1] https://en.wikipedia.org/wiki/Mount_Charleston [1.bis] https://en.wikipedia.org/wiki/Mount_Charleston,_Nevada
That said, I still moved after I got over my travel-all-the-time phase and felt like I had done everything to do there.
Theres supposedly a lot of opportunity there for people who only have a high school diploma (or less) due to the casinos and manual labor.
I think this is actually due to Trump capping the state income tax deduction. States with high income tax rates are seeing less real estate speculation.
IMO this is why a free-for-all relaxation of zoning doesn't work in New York, because a few select global cities (London, Paris, New York, etc.) have global appeal, and therefore market demand is not limited to just locals. Oligarchs aren't exactly looking to set up in the Bay.