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Las Vegas housing market checkup

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March 23, 2008 – Comments (9) | RELATED TICKERS: SPF , LEN , KBH

After spending almost a week in one of the most remote places in the US - The hot springs of saline valley in Death Valley national park, I drove back to Las Vegas for my spring housing market checkup. The change from the beauty of Death Valley, to the fast paced, no road rules of Vegas is not for the timid.

My first stop was North Las Vegas near the 215 beltway and I-15. I visited several subdivisions of public home-builders SPF, KBH, and LEN. I must digress just a bit. What is it with these subdivision names? Mountain shadows, Eagle canyon, Canyon springs, Coldwater ranch, etc...Let me make it clear - In Las Vegas, there are no freaking mountains, eagles, shadows, shade,  canyons, or coldwater!  Vegas is hotter than hell in the summer, and windier then the top of  Everest in the winter! The subdivision names should be:
 

Deadpan desert view estates
Tumbleweed factory condos
Dust-bowl dirt boxes
Desolate windy ditch ranch
At least your not renting homestead

Sorry, I'm back with the north Las Vegas subdivisions. I drove around and talked to potential buyers and agents. Overall traffic and interest is up considerably since Dec - but this is the seasonal norm. The big difference is that very few are buying. The prices here in Vegas are still too high, and the homes are just too big. Most floor-plans are at least 3500 - 4,000 sq. ft. The builders need to be downsizing these homes to 2500 sq ft IMHO. The current price per sq. ft is low, but the total price is just too high.

Beside price, the reasons for the lack of buying seem to be lack of mortgages, and fear of further price drops. In Las Vegas, the location is still key. In North LV and west LV near red rocks, activity is much stronger. South LV and Henderson are a completely different market - and in trouble. I don't know why Henderson is consider Las Vegas? Henderson in particular is horrific. Two developments projects, Inspirada and Kyle Canyon will cause major problems for KBH, BZH, and LEN.


Overall, I would avoid any HB with large Las Vegas and especially Henderson exposure. The most exposed to LV and Henderson are: LEN, KBH, BZH, and TOL. The home-builder with the least LV exposure is SPF with only 3 active communities(LEN has 34 active and 6 in Henderson).

On a positive note, I visited some large subdivisions in Northwest LV near the BLM boundary. A year ago these had thousands of empty boxes as far as the eye could see. As I drove in these new subdivisions, I noticed all the boxes are now occupied. Obviously I have no idea if these were all sold, or rented, but no slum-like deserted subdivisions that some of the media fear-mongers are spewing about.

I have been predicting the US government to start various bailout packages as this housing depression continues. This is happening with the GSE's now with 200-300B more $$ to lend, and the FED floating billions to brokers now. I am still predicting the final bailout - 300-500B buyout of CDO's and CMO's by the federal government.

Here is an excerpt from an earlier blog from over a month ago:

"The US housing bailout needs to work as follows. 300-500B of lower level tranches of CMO debt needs to be purchased and held by the US government. Also the GSE's/FHA need to loan cheap money 5.5% 30 yr, to refi the weak/poor loans with 2006-2007 vintages. and slow down the foreclosure process. The third leg of the bailout would be the GVMT helping states and cities raise bond funds to purchase distressed homes in hard hit communities and take them off the market - maybe affordable rentals, for lower level workers, etc...."

More US housing bailouts: 

This weekend, central banks from the US and England are considering mass purchases of mortgage-backed securities in a bid to solve the global credit crisis. The fed has since denied this rumor, but it does not matter - this WILL happen IMHO.


I am still looking to move to a fully invested position by mid-April/May. I think we will retest the lows, and I will be buying from my top 50 cash flow yielding list. I am not buying or shorting HB's here. To many variables that can not be predicted. If you have a large short position in a HB, when the Fed announces the HUGE CDO, CMO purchases - you will get crushed! As of now LEN and BZH would be my favorite short or red thumb candidates.

Good Luck to the foolish investor!

 

9 Comments – Post Your Own

#1) On March 23, 2008 at 2:15 PM, abitare (33.78) wrote:

LVS

Las Vegas will die a slow death. Every state wants gambling revenue, so will broke Americans drive / fly all the way to Vegas or drive 20 minutes to the Indian or River Boat Casino to lose their money? Would you want to retire in 100+ degree heat? Eventually, water, electric and food will become pricey as oil is not coming down and Las Vegas is in the middle of a NO WHERE DESERT, no water, no food near by and increased transportation costs.
Guess what? GET OUT!

Sheryl Crow was right:
"I'm leaving Las Vegas
And I won't be back
No I won't be back
Not this time"

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#2) On March 23, 2008 at 2:24 PM, bellard (99.33) wrote:

Cat;

I have been thinking LV would die for the past 10 years. But, LV has only grown bigger and stronger. People - young people 20-30yr olds just love Vegas. They drink and party, see shows , eat at great restuarants,etc..I do not understand this dynamic - but I would not bet against it. People still want to move to LV.....

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#3) On March 23, 2008 at 6:01 PM, cabuilderboy (87.73) wrote:

I have just made an offer on a KB home to help out my sister. I have been watching the market closely for the past year, particularly Henderson and Green Valley areas, and believe the investment is starting to make financial sense. You are correct, the market has been crippled, but knowing a little bit about the new home market and construction cost, I think now makes sense, especially since I probably won't look to sale for a 7 to 10 year time horizon.

Lastly, bellard is correct. The pundits have been declaring the end of LV since the mid 1980's, and have never been correct. No state taxes, a one of a kind community that provides a unique experience (conventions, vacations, etc.) that the indians can never match. Their housing market may be down, but I wouldn't brave enough to say vegas is faltering anytime soon.

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#4) On March 23, 2008 at 6:19 PM, bellard (99.33) wrote:

"but knowing a little bit about the new home market and construction cost"

 CA;

The inflation factor is important. Electricity, Diesel, cement, steel, health care, wages, are all going up. This trend will continue IMHO. This is bad for the HB;s, but makes buying a new home at depression prices interesting. New home costs 7 years from now will be up 40-50%. Good luck on your purchase!

 

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#5) On March 23, 2008 at 6:55 PM, abitare (33.78) wrote:

"I have been thinking LV would die for the past 10 years. But, LV has only grown bigger and stronger."

Just like the credit bubble and Americans belief they are wealthy off borrowed money some ideas do not die quickly. But reality can be a tough mistress. 

The lobbying wall to stop state gambling has been breached, by Indians, New Orleans, Jersians, West Viginian, river boats in KY. 

Almost ever county in Europe and many Asian countries have casinos. They are not going to let the tax on stupidity that is gambling go to some outsider.... 

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#6) On March 24, 2008 at 8:39 AM, floridabuilder2 (99.31) wrote:

the reason why they are building such big homes is because they were paying 1,000% more for raw land in places like Kyles Canyon and Inspirada...  I mentioned that in my last post.....  For about a month now I have stated that Las Vegas' land market is the worst in the nation (not housing, but land)..... this means a lot of builders and banks are going to take it in the shorts on all the developments there with huge write offs... once that happens and land prices reset, then builders can make money and new home buyers will find affordable housing....

however, if that happens you are going to see even more foreclosures due to people being so far under in equity

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#7) On March 24, 2008 at 8:56 AM, bellard (99.33) wrote:

FB;

I also agree that LV is the worst market for the HB;s. Don't you think LEN, KBH, BZH would all be in trouble??? I may red-thumb LEN is it goes up any higher..... 

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#8) On March 27, 2008 at 6:27 PM, pokergod (26.34) wrote:

I gave you a rec. because I was laughing my ass off over your comment on the subdivision names.  It was hilarious.  I find the only thing worse than the communities is the names of the houses.

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#9) On March 30, 2008 at 4:36 PM, dwot (72.18) wrote:

I was in Vegas in June and I was in wonder about all the building...  And, I couldn`t help but notice it in Florida when I was there in 2006. 

People may want to go to LV, but not at any price.  I felt that the prices were such that there was little respect for value.   So, now I`ve been there and I know of other places in the world I can visit for a good time, but way better value.

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