Scenes From The Las Vegas Housing Meltdown

Posted by John Carney, May 06, 2008, 7:49am

Despite what your crazy uncle or Warren Buffett says about housing prices, the residential real estate market in many areas of the US is still in a lot of trouble. Doug French, an executive vice president of a Nevada bank, spent Derby day at a housing auction in Las Vegas and what he saw wasn't pretty.


Finally it was post time for the action and the first home went up for bid – just short of 2,600 square feet in southwest Las Vegas. A brand new home, a one-year builder warranty, built by a reputable builder with a nearly 99 percent customer satisfaction rating, the auctioneer emphasized. To listen to the auctioneer, the bidding quickly escalated from the $159,000 starting point. The three young men working the crowd were frantically giving signals to the auctioneer, quickly moving from one attendee to another, and the price of home kept rising. It seemed like a real auction. But it was only real like professional wrestling is real. There were no actual bids on the first house, or the second, or the third. No bidding cards were raised.

The auction company kept up the charade for over 2 hours and for all 46 homes. The auctioneer’s rapid-fire delivery never waned. The young ladies who were there to help winning bidders with their sales contracts stood in the corner and clapped in unison until the very end. And the young tuxedoed gentlemen who worked the floor carried on with their elaborate gestures and signaling, as if it was a choreographed Broadway dance routine.

Only a couple dozen people remained by auction end, and only a handful of homes were actually sold. There were few real bids even at the low starting prices that were only a third the price that similar homes fetched during the boom a couple years ago.

No Bids at the Auction [LewRockwell.com]

0Recommend this! 15Comments
Posted in: Real Estate
Tags: Anecdotal Evidence, Las Vegas

Comments

1

Posted by guest, May 06, 2008 8:42AM

Have we all seen the new Realtor ads on TV? "Now is the time to buy...."

I think aliens did crash at Roswell and one mated with a real estate agent, Lurdelle Shronk, of Roswell and from her loins sprang Nerzip Qwaeeeyuu Shronk, preprogramed to become a real estate agent like his mother. And he begat one who begat one and so on. You see them everywhere today it seems. They are dealers for the opiate of the capitalistic masses: real estate.

2

Posted by guest, May 06, 2008 8:55AM

The homes will sell eventually. Maybe the banks and/or sellers are just greedy, broke, underwater, etc.

It sounds like the homes they were selling were to junky, bad neighborhoods, or just over priced.

3

Posted by diablo, May 06, 2008 8:55AM

This is what Buffett said this weekend:

Buffett: "What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market."

4

Posted by diablo, May 06, 2008 9:00AM

Correction: Buffett said that 2 years ago.

This weekend he said:

"It's not over yet."

5

Posted by guest, May 06, 2008 9:09AM

If I had Buffett's money, I'd shit on day trading too. Until then, however....make it while you can!

6

Posted by guest, May 06, 2008 10:04AM

9:09 - Good morning Timmmayyyy.

7

Posted by guest, May 06, 2008 10:06AM

I've got bad news for you. The "new money" stopped coming into Real Estate a year ago. Now even the soundest banks are coming up with excuses not to lend, and underwriting standards have tightened up tighter than a Japanese condom.

All that, PLUS, we still have two GIGANTIC tranches of toxic mortgage re-sets to go, the Jumbo "Alt-A" and the supposedly "A-Credit" Option Arms. These may prove to be even more de-stabilizing than the most toxic tranches that have already unwound.

Even some of the most insulated, high-equity sub-markets have now seen declines of 7-10% and rising inventories of unsold homes (some of it is seasonality, but not all).

This is not over by a long shot and there is no "White Knight" on the horizon for Residential Real Estate. FHA may have a positive impact, but it won't be nearly enough.

New money won't be coming into these markets for a long time.

Buy Apartments.

8

Posted by guest, May 06, 2008 1:19PM

Those homes were in some very good areas. The reason they are not selling is because they are still way too overpriced. LV homes will drop down to late 1990s price levels before we hit the bottom, which will be in about 2 years or so.

9

Posted by guest, May 06, 2008 1:45PM

I agree with 1:19pm, that the homes didn't sell because they were overpriced. Look at the state of real wages, people! I don't know how far we have to drop -- many are saying at least another 10 - 15% -- or when we will hit bottom. We'll know when the houses start selling again to someone other than long-term investors.

10

Posted by guest, May 07, 2008 10:24AM

Its really nice to think prices will go to the late 1990s but that is wishful thinking.

Mainly because construction costs are higher than those prices ten years ago.

Builders cannot build houses for less than the cost of materials. Once the foreclosures clear out prices will stabilize, but the lowest you will probably see them go is back to the 2003 prices at the most, which was when LV was considered undervalued (which is what caused the 2004 price runup in the first place).

Foreclosures are selling for less than building cost so builders are on the sideline and are pulling permits at the lowest rate ever.

So if you don't want to see that mess again, 2004 is a better place to land.

11

Posted by guest, May 07, 2008 10:27AM

Price runup was 54%. The current drop is 22%. That still leaves 22 more % to even get to 2003 prices. You will probably see 15-20% more. I agree with 10:24am, builder will eventually have to build with some sort of profit and late 1990 prices are below builder cost.

12

Posted by guest, May 07, 2008 10:29AM

You're forgetting the impact of declining interest rates and then availability of credit on house prices. Add in the impact of a growing labor market in Vegas and its a much more complex picture than you're describing.

13

Posted by guest, May 07, 2008 10:31AM

I have been in touch with some investor friends and good foreclosures are now getting multiple offers. The big problem is that it is taking too long for banks to close the deals.

A look at NARREIA statistics shows now that the below $300K homes are a 90 day supply and $300-$499K are about a 120 day supply. This is down from over 345 days 6 months ago.

Also for the first time in a year, they sold more houses last month than a year ago same month.

Foreclosures will depress prices until they clear up, but you can bet after that builders will price to cost +profit and those that bought foreclosures have no intention to do anything but make a profit by selling them at market.

Regular home sellers have moved to the sidelines to wait and not compete with the foreclosures.

14

Posted by guest, May 07, 2008 10:33AM

Agree with 10:29. 2009 will bring a job influx on a large scale.

If banks will just swing a little away from the kneejerk reaction, you actually might see even more houses sell.

Also the bill passed in Carson City is just killing tip earners because many banks wont give a stated income loan which is what many LV residents use.

15

Posted by guest, May 07, 2008 10:34AM

The bottom line I agree with is that builders will eventually have to build for cost plus profit. This will determine home prices more than anything in the future. No business can build at a loss.

We will have to watch job growth in 2009 and 2010 from City Center for the labor market.

Interest rates are still near historic lows for homes. I remember when they were over 12% a number of years ago.

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