Oil Price to Drop to $80?

August 19, 2008

Tom Petrie from Merill Lynch:

Decreased global demand will push the price of oil to about $80 a barrel in the coming months, Merrill Lynch Vice Chairman Tom Petrie said on CNBC.

“I think it’s pretty clear demand elasticities have been triggered in a way that will take prices lwer,” Petrie said. “I do think $80 to $90 is probably where the floor is.”



Home Prices Did Not Plunge 16% This Month

July 30, 2008

Case Shiller housing index numbers have been released for May 2008, and once again, the headlines tell a different story than the reality.  If you scanned a few of today’s articles you might not be blamed if you thought that home prices had plummeted 16% this past month.  The drop, of course, is versus 2007, not versus April 2008, and is old news at this point.  But some journalists, and more than a few bloggers still can’t resist casting out the old “Home Prices Plunge 16%” reader bait.

The actual Las Vegas numbers show a 2.9% decrease in average prices over the April 2008 numbers.  While the index has still not leveled off, the May numbers are a significant improvement over the drops in November ’07 through March ’08.

When looking at Case Shiller indices it’s important to remember two facts:

1.    A significant number of the home sales the index is currently measuring are foreclosures, which are skewing the indexes lower.  When these forced sales at abnormally low prices finally work themselves through the market we should expect to see the index start to rebound fairly quickly as more “normal” sales are reflected.

2.    The index lags the market very significantly.  The numbers Case Shiller calls “May ’08” are actually taken from a three month rolling average of sales for March, April, and May.  With market uncertainty at or near an all-time high, March may very well have been the real low.

-Frothing Mark

Pending Home Sales Up Across Country

June 9, 2008

Lots of good news this morning.

The National Association of Realtors writes:

Pending home sales unexpectedly increased in April to the highest reading since October…

One notable detail is the degree of increase in just the last 30 days:

The National Association of Realtors’ seasonally adjusted index of pending sales for existing homes rose to 88.2 from a March reading of 83.0, the lowest since the index was started in 2001

Another notable detail is that the West performed even better than this average, and is selling faster than a year ago:

The April index in the West climbed 8.3 percent from March and is 4 percent higher than a year ago.

Finally, it was nice to see the NAR specifically call out the selling activity in Las Vegas:

NAR Chief Economist Lawrence Yun noted that pending sales contracts have ticked up in areas with the largest price declines such as Detroit and Las Vegas.

See the full article here.

Ever So Quietly, Las Vegas Real Estate Prices Start Rising

June 6, 2008

Almost without notice, almost unheralded, price increases have begun.

In this morning’s LVRJ, Hubble Smith notes “The median sales price of $236,692 is down 21.5 percent from a year ago but up slightly from April”.

The important thing here is not the colorful but basically irrelevant “down 21.5 percent” statistic. The important thing is the “up slightly from April”. My prediction, as posted previously, is that April was and will be the point of lowest price. May was up slightly, and June will be up again. This is based on the falling inventory and anecdotal reports of bidder wars over lower-priced units. Sales velocity will drop off in the hot summer months a bit, I suspect, just because it’s so hot out, but I don’t think Las Vegas will ever again see median prices as low as we had in April.

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

June 2, 2008

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.

Inventory Plunges 500 units over the weekend

June 2, 2008

On the 29th, we pointed out that total inventory of available homes for sale in Las Vegas had dropped below 22,400. As of this morning, on the 2nd of June, inventory stands at 21,917. Another huge drop in inventory. Probably, a lot of stuff closed at the end of May, and also, some old stale inventory probably timed out and expired.

Case – Shiller Update

May 29, 2008

Las Vegas Case-Shiller index drops to 169. That data reflects March pricing and the drop from February. My prediction is that we’ll have one more good-sized drop in the index when it comes out at the end of June. Come end of July, though, the index will only go down if the sales that happened in the month of May were at lower prices than the sales that happened in the month of April. I predict that didn’t happen (interesting use of tenses there, no?). My prediction is that based on anecdotal evidence that foreclosures in April sold at lower prices than foreclosures in May, that we’ll see a leveling off of Case-Shiller in Las Vegas. That should get significant national attention, because I predict at the same time that most other parts of the country will continue to see price declines. You read it here first!

Chart courtesy of Calculated Risk: