In Business Las Vegas: “Shrinking Home Inventories Grounds for Optimism”

In Business Las Vegas ran a story today summarizing various expert viewpoints on whether we’ve reached a bottom or whether it’s still to come. According to the piece,

Sales of existing homes have picked up this spring, dropping inventory to a 13-month supply, and in April the market had its first year-over-year increase in more than two years.

Sales of new homes, although sluggish by historic standards, have bounced back slightly and stopped their downward slide.

There is about a six-week supply of new homes.

Realtors and builders report traffic has increased. It appears a more than 20 percent decline in new-home and existing-home prices over the past 15 months or so has triggered buying by people shut out of the market because of affordability.

The piece quotes several industry execs who are optimistic about Las Vegas’ prospects:

Terry Jones, vice president of AmTrust Bank, says the housing market is close to its bottom if not there already. He said some existing homes are selling for less than $90 a square foot, and it’s hard to imagine builders going much lower with prices.

Kevork Zoryan, executive director of Morgan Stanley in Los Angeles, said he’s surprised by the small standing inventory in the new-home market in Las Vegas, and it’s positioned for a rebound once foreclosures are eaten up.

…Because Las Vegas was hit earlier than other Southwest markets, it will recover more quickly, Zoryan said.

Some are even more optimistic. Tom McCormick, president of Astoria Homes, said he thinks the bottom was reached in the first quarter. Many foreclosed homes have gone on the market, home sales are increasing and prices are starting to stabilize, he said.

John Richardson, senior vice president of Countrywide Home Loans in San Diego, said, “lenders are spurring sales by making more loans available in recent weeks.

The piece goes on to quote other experts who offer a more “tempered” point of view.

Ken Perlman, vice president of Sullivan Group, said he expects slow going for the rest of 2008 and doesn’t expect any appreciation before 2010. “I wish I could tell you differently, but it will probably be slow in 2009, too,” Perlman said. “There is no way to spin it.”

Actually Ken, there are several positive ways to spin it, and you’ve conveniently provided us with the material yourself. Let’s take your points one by one:

1. Perlman says:

There is still plenty to overcome because consumers are frightened about the economy and because buyers expect further erosions in prices”

At the same time the article says,

Perelman himself discounts in the article predictions by some national experts that Las Vegas home prices could fall another 18 percent.

If you believe prices aren’t going to fall dramatically, then doesn’t that mean we’ve reached or are close to a bottom?

2. Perelman then discusses jobs:

“While technically we are not in a recession, what you feel is a recessionary environment,” Sullivan said. “We are not growing jobs.”

I’m not sure where you’re getting your stats Ken, but job growth is moving right along in Las Vegas. According to the most recent Bureau of Labor Statistics reports more than 20,000 new jobs have been created in Las Vegas just since December 2007, and unemployment is down .2% in that same time period.

We’re already starting the feel the ramp up of the huge hiring wave that will take place in late ’08 and early ’09, even before those projects start their own hiring campaigns.

Vendors to projects like CityCenter, Echelon, etc. have already started to make presentations and bid on goods and services. To get the business companies without a presence here already will need forces on the ground, up and running in Las Vegas well before those projects are complete.

3. Perelman adds another point that’s easy to spin positively:

Builders have been relying less on incentives and more on pricing. In May, the amount of incentives fell to $18,782, down from a high of $27,436 in October, according to the Sullivan Group.

This is a huge positive, not a negative. First, by eliminating incentives and pricing homes at market value builders have managed to get inventories down to a very low six week supply. . At those inventory levels builders have no need to lower prices further. As new home prices stabilize that’s one less downward force on resale homes. Second, as buyers stop seeing ads offering free cars, no payments for two years, etc., they’ll be less conditioned to assume that builders are hurting and prices are dropping further.

4. According to Perelman:

The good news is that savings rate increased in the first quarter and that will give people more of an ability to buy a home when they are ready.

We know your job is to hedge, Ken, but if prices aren’t going to fall any further, job growth is actually positive, new home inventories have stabilized, and people now have more money saved to buy new homes, how could you put anything other than a positive spin on the Las Vegas market?

-Frothing Mark

Read the full In Business story.

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