The last time the housing bubble popped, the "frontier" marginal market of Las Vegas was the first harbinger of what was about to come. It is that again, and as real estate expert Mark Hanson explains, "Las Vegas housing demand has crashed." This is hardly an auspicious sign for the rest of the epically reflated housing market which as we have been tirelelessly pointing out for the past two years, has not recovered, but has merely had its 4th dead cat bounce on the back of i) the implicit bank subsidy of foreclosure stuffing, ii) money laundering by "all cash" foreign buyers using the NAR's anti-money laundering exemption loophole, and iii) private equity zero cost of credit REO-to-Rent programs which are now in their last days.
From Mark Hanson: Lost Vegas
Las Vegas housing demand has crashed. "Crash"...there is no other word to use. This is not hyperbole. "Crashed" is absolutely the appropriate word to use here given sales are suddenly the weakest levels since Armageddon 2009. I mean come on...sales at the same pace as when the stock market was in the midst of one of the greatest plunges in history speaks loudly...at least to me. Volume precedes price.
Supply is surging in Vegas with "months-supply" back to nearly 7 months (over 7 for condos), and at 2010/11 levels. There certainly is NO LACK OF SUPPLY in this market. And ponder about this for a minute...and apply it to all these other "investor-centric" regions around the nation. That is, in Vegas there are 10s of thousands of single-family houses being readied for rent by new-era "investors". This flood of freshly rehabbed "for rent" supply will competes at some level with resale and builder "for sale" supply. Even if it competes at a factor of .4, then Las Vegas "normalized" month's supply could right now be back to a year.
Lastly, houses are as expensive on a monthly payment basis -- and relative to the income needed to qualify for a loan -- then they were at the peak of the bubble in 2006. But, this is a fact masked over for the past year by the plethora of all-cash buyers who are not governed by employment, income and safe & sound mortgage lending requirements. Like Sacramento, Phoenix, regions in the Inland Empire, and a dozen other "hot" real estate markets around the nation -- that, "not"-coincidentally are the regions in which private and new-era "investors" swarmed with cash regularly paying 10% to 20% over appraised value / list price using flawed cap rate models as a guide -- when the stimulus go-go juice ran out this market hit a literal "brick wall" the size of 2007.
With house as expensive on a monthly payment basis than they were in 2007, when this market turns back towards "organic" being the incremental demand driver (people that can only buy as much house as their job, earnings, and mortgage qualifications dictate) serious double-digit percent points of house price downside will occur. That's in the process of happening now.
The next year in Vegas could easily bring a 50% retracement of the past two years historic annualized gains, which to all the investor models predicting 10% appreciation in perpetuity, will feel like a crash.
So, question is, what businesses are levered to the past couple of years of resale house volume momentum and energy? Those are the stocks that will shock the most amount of people in 2014. Companies levered to Existing Sales typically feel trend changes two to three quarters afterward meaning Q1/Q2 will usher in a hard downshift -- especially relative to Q1/Q2 2013 when volume was going parabolic -- since 2008 and the period following the expiration of the Homebuyer Tax Credit.
November Existing Sales/Supply Stats
- down 17% MoM
- down 20% YoY
- down 32% from peak summer
- down 33% from Nov 2011, down 24% from Nov 2010, and down 45% from Nov 2009
- lowest sales volume since Jan 2009
- Highest "months supply" metric since 2011
- SFR at 6.5 months, up 11% YoY
- Condo at 7.4 months, up 23% YoY
Item 1) Las Vegas November House Sales down 20% YoY and at their lowest levels since Jan 2009
Item 2) Broken out, Condo are performing slightly better but sales are still at 2009 lows.
Item 3) Month's supply surging...back to 2010/11 levels
Item 4) It costs the same per month and requires the same monthly income today to buy the Nov median priced house as in 2006 at the bubble peak.
If that was a bubble then...
h/t Doug Kass