Chinese Ghost Cities Coming To The Las Vegas Housing Market

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Let’s face it, the Las Vegas real estate market has gone full Chinese.  By full Chinese I mean a centrally planned bubble has been created that is just asking to blow up.  I’ve covered the renewed insanity of the Las Vegas market before, but this article from yesterday’s Wall Street Journal provides even more detail.  In a nutshell, as a result of Assembly Bill 284, which essentially made foreclosures impossible in Nevada, extremely delinquent homes are not coming for sale, and this phony market signal is leading to rampant overbuilding and price speculation.

Here are some numbers. Utility data showed nearly 64,000 vacant homes in Las Vegas at the end of last September, only 8,000 of which are on the market. Meanwhile, new home sales are up 87% and new building permits are up 52% this year. What’s the end result? Another bubble, but this time one where Blackstone and other private equity firms are pricing out average citizens with elevated all cash bids.  USA! USA!  From the WSJ:

LAS VEGAS—In a city dotted with tens of thousands of vacant houses, Jericho Guarin figured it would be easy to buy his first home. But nearly a year after beginning a search late last summer, he has come up dry.


“It has been a nightmare,” says the 37-year-old U.S. Air Force officer. “There are plenty of empty houses, but they’re just not for sale.”

Thank you for your service Mr. Guarin, now go rent from Blackstone.

Many real-estate agents, home builders and consumer advocates argue that the law, intended to remedy foreclosure-processing abuses, has backfired. Some owners who are behind on payments aren’t maintaining their homes as banks refrain from eviction proceedings. The perverse outcome: Inventory shortages have spurred new developments despite a glut of properties stuck in foreclosure limbo.


“The people hurt most by this law are the middle class,” says Steve Hawks, a real-estate agent in Henderson, Nev. He refers to the phenomenon wrought by the foreclosure measure, Assembly Bill 284, as the “A.B. 284 bubble.”

The middle class…what’s that?

Mr. Guarin, the Air Force Captain, is preapproved for a mortgage backed by the Veterans Administration for up to $185,000. But like many buyers who need financing, he is at a severe disadvantage because sellers often prefer all-cash deals that won’t be tied up by a low appraisal or other red tape. “There’s no way I can match the cash offers,” says Mr. Guarin.


With investors in the game, more properties are commanding prices above asking—a phenomenon real-estate agent Bryan Lebo knows all too well. Recently, he listed a bank-owned property for $86,000. The home, which he said needed around $20,000 in repairs, drew 41 offers—39 of them all-cash—and sold to an investor for $135,000. “If you’re an honest working person, you pretty much don’t have a chance,” says Mr. Lebo of current market conditions.


The inventory shortages, meanwhile, have been a boon for some—especially builders. “A.B. 284 has been great for us. It darn near eliminated the constant inflow of foreclosures on the resale market,” says Robert Beville, president of Harmony Homes, a local home builder. Mr. Beville says Harmony has sold 57 homes this year to cash buyers, compared to 70 in all of 2012. Realtors say investors are planning to flip the homes to a new buyer on the bet that prices will have jumped even more by the time the homes are built.


Wait, what year is this?? 

The inventory situation has also allowed more builders to get back into the game. According to the most recent available statistics, Las Vegas had just 4,300 previously owned homes listed for sale in April, down 70% from two years ago. New home sales, meanwhile, are up by 87% so far this year.


So far this year, the number of new building permits issued for new home construction is up 52% from the year-ago period—one of the largest jumps in the nation.


Mr. Jordan spent six months looking for an existing home and another three months looking for new properties before he signed a contract to pay $362,500 on a four-bedroom house that broke ground last month. The home, which was about 10% above his initial budget, should be completed by September.

Sure, why would a citizen have the right to buy an empty home at market prices when he can be forced into a brand new one 10% above his budget.

Among the nation’s 30 largest metro areas, Las Vegas had the highest share of loans that were 90 days or more past due but not yet referred to foreclosure as of April, according to the most recent data from Lender Processing Services.


Nearly 45,000 loans are either 90 days or more past due or in foreclosure. Local electric-utility data showed nearly 64,000 vacant homes at the end of last September, according to a tally by analysts at the University of Nevada-Las Vegas. Fewer than 8,000 of those units were listed for sale.


Meanwhile, Mr. Peters sees little to celebrate. Even though A.B. 284 has benefited his clients, “there has to be turnover in the housing market for it to recover,” he says. “It’s caused another bubble to erupt. We saw the same thing eight years ago. We know it’s unsustainable.”

Bubbles and bullshit.  It’s the American way.

Full article here.

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LightStone's picture

David Lichtenstein has another interesting story when it comes to investments in real estate business.">

machineh's picture

Full Chinese ... POMO arigato!

Herd Redirection Committee's picture

64000 vacant homes.  Call 1/2 vacation homes.

That leaves 32000 homes.  8000 of which are listed. 

That leaves 24000 waiting to come on market.  And sure, they will be run down, but unless its a tear down that will mean renovations, not building new homes.

mophead's picture

A four bedroom for $362,500!? I can assure you, as of a year ago he could of bought a 3000 sqft home with five beds for around $180K-$220K in a good area, in many cases with a swiming pool. These same houses are now closing at $280K-$380K. I'm speaking of the houses on the west side of the 15 right as you're entering Vegas. 5000-5500 sqft homes in gated communities in this area were selling for as low as $340K-$400K every day of the week. These houses are now closing $480K-$560K. Most are well above $500K.

Handful of Dust's picture

I was in LV a few months ago and saw houses for rent....with the first 3 months for free...just like many apartment complexes.


Very Bullish!

mophead's picture

Another example of the total madness that's going on: I know someone who just put a down payment on a new home. In this area, between 2009-2011, a 2800 sqft home built between 2002-2006 sold for around $275K-$335K. The new home my friend is buying is 2800 sqft and is priced at.....(drum roll).... > $500,000. Insanity.

Antifaschistische's picture

yep.....all this in a place that will one day face the ramifications of "peak water".    As Lake Mead continues to drain, the water wars will one day be the real battleground....and Bernake can't print that.

quintago's picture

Who cares, we making money until then.

Herd Redirection Committee's picture

Just make sure to realize those gains.

Panafrican Funktron Robot's picture

"Just make sure to realize those gains."

US taxpayer backstop pretty much guarantees this.

machineh's picture

Are you telling us that 'liquidity' and water are not the same thing??

nugjuice's picture

REALLY don't understand why this isn't a National discussion yet. This will be one ugly political shitstorm when we try to iron out the water rationing rules.

Rantabulous's picture

That's not a housing bubble. (shows a copy of Melbourne, Australia real estate sales brochure) now that's a housing bubble.

Just kids having fun.

New World Chaos's picture

Great.  A new housing bubble, with tens of thousands of houses vacant and decaying, and 1000 sewer people living under the ciy, while the Great Mafia Casino keeps raking it in:

Fuck you, Bernake!

carbon's picture

nightmare, yes ! HE !  what about the property tax, only well of people get good night sleep in a house in las vegas.

southerncomfort's picture

interestingly it appears they're still using homestead deductions of former owners to avoid local real estate taxation -- sucking counties dry on real non-homestead holdings being booked at homestead rates.  more insider theft... 

Droel's picture

I understand New York will be going full Chinese soon too. Couple months ago. I heard NY had a law going into effect soon that would make foreclosures impossible, anyone know any details?

neidermeyer's picture

Details? Nope .. but the real scoop is that 98% of the foreclosures on houses financed between 1990 and mid 2007 are illegal ,, the foreclosing party does not have standing ... that is why NV foreclosures are baically halted ... there are actually penalties now for the bank to lie and submit forged documents in court .. imagine that!  In New York Judge Shack (sp?) is ripping the banks up and down on their lack of standing and forged docs... if he doesn't get fitted for cement shoes NY will go the same way as NV ,, and that's a great thing.

Spigot's picture

arigato ... Japanese, you ass.

Jumbotron's picture

"Tiny Bubbles"

Don Ho


Oh how I long for the day of Tiny Bubbles instead of Apocalyptic Financial Bubbles and Tiny Bullshit....instead of a planet drowning in it.

Bay of Pigs's picture

The shadow inventory of houses and condos is still in the millions across the country.

Drill down more than a quarter of an inch and you'll see the housing "recovery" is complete bullshit.

pachanguero's picture

WTF? Think I'll buy the yellow metal.

DeadFred's picture

There may be ghost cities coming to Las Vegas but those 'ghost cities' in China are being well maintained. Look on Google images and see that the landscaping is green, there are no broken windows, no dust or trash anywhere. The Chinese still expect to move in. My guess is they're planned to escape the radiation after the war. Look at those images and ask yourself who do they expect to move in there, the finance ministers and scientists or the guy who inventories the iPhones at the factory. Look at the evidence, those aren't ghost cities just because no one has moved in YET.

hankwil74's picture

Next time something hits New Orleans, the gov't should just move everyone to Vegas. Problem solved!

francis_sawyer's picture

Then when the water runs out they can move them all back to New Orleans [which will be 50 feet underwater]...

WillyGroper's picture

Given china's demographics & 1 child policy, I'm more inclined to think this is where the aged will be warehoused.

DeadFred's picture

Take a look at the photos. Those are sweet looking buildings, modern office buildings surrounded by MacMansions.

Temporalist's picture

But they were built by Chinese...with their own drywall

fallout11's picture

Why rent or buy when you can just squat instead?  The rule of law is already absent in the housing/banking sector, and 'possession' is 9/10ths of the law.....

Biggieshort's picture

In our current "economic delusion" this article will be interpreted as positive.

The Abstraction of Justice's picture

Ditto the world, again. Don't think you are alone in corruption.

prains's picture

LOFL stupid is as stupid does. And the sheep bleet on.......

Der Wille Zur Macht's picture

Lee Ho's the real deal, he's full on Chinese!   -Dante

sudzee's picture

What difference does price and interest rate have to do with anything if the p&i don't need to be paid back. Buy moar, rent them out and live the good life.

Mercury's picture

Well at least the robo-signers didn't win - right?

Pick your poison ZH: you can argue (perhaps correctly) that the bank waving the defaulted-on mortgage title doesn't actually legally own the mortgage but the fact is the delinquent homeowner is sticking his debt to somebody and somebody should be able to foreclose on him within 90 days.

Stalling the foreclosure process (clearly the greater evil as I've pointed out many times before and as this article shows) prevents the market from clearing and you get this kind of shitshow.  It's that simple.

granolageek's picture

Any bank that can produce the original documents can foreclose in far less than 90 days.

Did you miss the part about the all cash offers? Nothing to do with AB watchamacallit. The banks and hedgies don't want the market cleared.

Mercury's picture

Well "any bank" in this case is limited to a handful of smaller banks that never sold their loans and still have them in the back room - good for them for playing it safe and simple.

It's a shame that all the other banks didn't play by the rules but that's really a technicality in the context of a large market functioning normally or not at all. Also, it is a fact that the deadbeat homeowner either owes money to Bank A or Bank B - no one can dispute that.

So now foreclosures are down 95% or whatever because most mortgages aren't in some bank's back room and because of this law delinquent owners get to stay in houses they can't afford. New buyers (like the vet in the article) who would otherwise be perfect candidates to purchase that foreclosed-on home (thus re-allocating capital and clearing the market) is now forced to compete with richer, cash-only buyers for new construction. So, yes AB 284 has everything to do with it.

What should have happened in this type of circumstance is the government (aka the adult in the room) steps in and says:

1) Fuck it, robo-signed titles are good enough for now between this date and that date but going forward this shit will no longer fly.

2) If no one can produce a proper title by date X the title becomes the property of the state and going forward this shit will no longer fly.

or even:

3) If no one can produce a proper title by date X then the mortgage is null and void and going forward this shit will no longer fly.

At the very least this issue should have been settled by the courts not by legislating politicians. What we have now is a break-down of the rule of law papered over with an even larger break-down of the rule of law.

Traps's picture

"What should happen in this type of circumstance is the government (aka the adult in the room) steps in and says:"


That's how we got into this mess to begin with dontcha know....

Mercury's picture

Well clearly in this case they said the wrong thing.

Ensuring the enforceability of contracts and adjudicating disputes thereof is something that even the most ardent libertarians tend to agree is among the primary responsibilities of government.

Traps's picture

"Ensuring the enforceability of contracts and adjudicating disputes thereof is something that even the most ardent libertarians tend to agree is among the primary responsibilities of government."

So now you speak for all Libertarians? Did you author the Libertarian charter? Didn't know Libertarians published a charter...


You've got to be a lawyer....




Mercury's picture

Lighten up tough guy I send "most...tend to..."

OneTinSoldier66's picture

"What should have happened in this type of circumstance is..."


The Banks should have never gotten bailed out. That is what should have happened.


Of course I could go further back(or go a lot deeper) than that. For instance...


By taking away the Gold Standard they took away our money, in order to make it theirs.


I can go back even further and go even deeper. But there's an example fwiw.

SoCalBusted's picture

Just ask a Chrysler bond holder.

slightlyskeptical's picture

What should have happened was Uncle Sam should have swept in and bought every primary mortgage in existence and refinanced in such a way that they avoided losses over the 30 year term. Once Uncle Sam owned them the paper would be made good as gold.  I estimate they could have shaved 20-30% off the average mortgage and lowered rates to 3.5-4%, savings households an average of $2,000/yr. At the same time make sure that any new mortgages have the definitive terms that you desire. This would ahve served to revive the economy much moret han the results we see from the Fed.

neidermeyer's picture

@Mercury ,, I have an easier solution than your idea of giving the banks a free house that they already profited from .. It's called show me the accounting ... if you have standing you can foreclose , otherwise GET THE F OUT OF MY COURTHOUSE... The banks should be made to pay each homeowner $10,000 as payment toward the Quiet Title suit every one of us will have to file.

Rearranging Deckchairs's picture

One of the things that Mike at liberty Blitzkrieg doesn't discuss from the WSJ journal is the part about the Homeowner's associations selling liens to investors. Some investors have bought hundreds of these HOA foreclosure deeds and are renting the properties out until the banks foreclose.


RacerX's picture

Then it must be a "Great Time to Buy".