The Financial Analysis Guy

On Wednesday, Home Builders Research President Dennis Smith gave his annual presentation on the “state of the Las Vegas housing market” to hundreds of Las Vegas real estate professionals.  I was not able to attend this year, but I did speak with several folks that were able to attend. 

Our leading housing prognosticator here in town made some good comments and some not so good.  Again, many look to this guy to give them guidance as to how to “feel” about the coming months.  Dennis pointed out that new-home sales in Las Vegas are down 49 percent for the first two months of the year, existing-home sales are off 37 percent and home building permits have plunged 70 percent

He said, “Obviously we’ve got tight credit and qualifying requirements.  Those are factors, too. I could go on and on. I think we’re close to the bottom, but it’s going to be an extended bottom.”

Any recovery won’t be in the shape of a “V” but a flat-bottom “U,” Smith told about 700 builders, developers, mortgage brokers and real estate agents at the Las Vegas Convention Center.

He predicted that median new-home prices will finish the year at $274,000, about $1,000 more than February’s median, though it will dip further between now and then. He thinks 2009 will show a 2.2 percent increase to $280,000 and 2010 will be about the same, with prices conservatively climbing to $286,000.

“We had many years of 1.5 percent to 2 percent increases and that’s what we’re going back to,” Smith said.  Resale prices, which are down 5.2 percent so far this year, will rise again by about 1.3 percent in 2009 to $240,000, he predicted.

This information is fine, but if you are working in this market, you simply want to hear something different.  We have all been wallowing in this purgatory for quite some time now and we want to believe something different.  I take a different viewpoint than from what Dennis and others who are way too negative at the moment. 

NO ONE and I do mean absolutely nobody predicted in 2003 that we would get to 38,000 new housing units in 2005 and 2006.  Nobody could foresee such a run-up and bubble like what we saw in those years.  Why would we simply blindly buy into this near doomsday scenario for new home-builders. 

Look, there are TONS of new jobs coming in the coming year or so.  Interest rates will end up falling SHARPLY very soon due to the Uncle Ben and Fed’s action on the Fed Target Rate.  There are still 6000 folks moving in every month. 

Please folks, try to stay positive and look at the physicals.  It is very easy to see where we are today and predict that more of the same is coming.  It is very difficult to take the position of change.  Therefore, many in the business take this position like Dennis has taken. 

The following information came from that presentation and was published in the local newspaper as well.  This is just for historical perspective, but please see where the bubble occurred and where we are today.  If you were put this on a chart, you will see where we have to go to make up for the false demand in those high-tide years.