In Business Las Vegas misses by 90%

August 4, 2008

Brian Wargo’s “Condo Market Still Down” in this week’s In Business Las Vegas seriously misleads and misinforms. It states

The mid-rise market remains weak…Three units were sold during the second quarter compared with four in the first quarter.

This is absurdly wrong. Manhattan Condominiums alone closed 9 resale units in Q2, and Park Avenue closed 11. Something had to be wrong here, so I contacted John Restrepo, who provided IBLV with the information. Restrepo said that he was only counting mid-rise units “above $350 per square foot”.

So we have two big wrong things here. The first wrongness is in even having such a category. Not only is $350 per square foot a completely arbitrary measure, making any report about mid-rise units at that price point is going to be misleading. Hardly any mid-rise units in Las Vegas sell at that point.

The second wrong thing is when IBLV blithely prints this information and ascribes it to the entire market. This makes things seem much worse than they are.

I never cease to be amazed at the media’s fetishistic focus on high-rise buildings. The represent such a small portion of the Las Vegas market, and they are so irrelevant to most of the population.


Salestraq and LVRJ Wildly Overstate Vegas High Rise Construction Pipeline

June 3, 2008

In today’s Las Vegas Review Journal, Salestraq is cited claiming that in Las Vegas, there are 12,479 “luxury condominium tower units” under construction.

Frothing Developer thinks this number is, in the words of Frothing Developer’s Minnesota-born father, malarkey.

We are aware of the following:

High Highrises

CityCenter: 2500 units, MOST of which are hotel rooms
Fontainebleau: 1018 hotel room units
Palazzo: 270 units, ALL of which are likely hotel rooms
Cosmpolitan: 1300 hotel room condominiums, according to Salestraq
Panorama Tower 3: about 300 units

Sorta Highrises:

Juhl: 346 units
Element House at ManhattanWest: 76 units

Can you think of any we’ve missed? We leave out Sullivan Square, which technically has started excavation on a couple of hundred units, but has stalled out as the developer and financier sue each other.

This true pipeline of under-construction units adds up to 5,886. That’s less than half of what the LVRJ reported today. It’s also mostly made up of itty-bitty hotel rooms.

If anyone can find the missing 7000 under-construction high-rise units that Salestraq and Jennifer Robison of the LVRJ reported exist this morning, please let Frothing Developer know.

In the meantime, Frothing Developer thinks the numbers published this morning dramatically misrepresent the state of the market.

UPDATE: We just talked with Larry Murphy at Salestraq and confirmed that the LVRJ mislabelled a report that covered ALL condominiums under construction as just HIGH-RISES under construction, dramatically overstating inventory.


Committed Renter Buys House

May 28, 2008

This article, which is currently the most emailed business article in the New York Times, is interesting primarily for its analytical approach:

The case for renting has been simple enough. House prices rose so high in the first half of this decade that you could often get more for your money by renting. You could also avoid having a large part of your net worth tied up in a speculative bubble.

Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.

The concept will probably sound familiar to stock market investors. It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.

Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.

And while home prices — and rent ratios — have always been higher on the coasts, they reached whole new levels recently. In the Washington area, the ratio went above 20. In Boston, New York, Los Angeles and south Florida, it topped 25. In Northern California, it approached 35, higher than it had been in any city, at any point on record.

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In the neighborhoods where we were looking, two-bedroom condominiums were selling for $400,000 and being rented for about $2,100 a month, which makes for a rent ratio of 16. Four-bedroom houses were selling for $700,000 and being rented for almost $4,000, which makes for a rent ratio of 15. No matter the price range, pretty much every apples-to-apples comparison produced a similar ratio.

Historically, this is still a bit high. But it’s very different from where the market was just a couple of years ago. With house prices having fallen over the last two years and rents continuing to rise, the decision became a much closer call. We would now have to spend only a little more each month for the privilege of owning.

This article calculates Las Vegas’ Rent Ratio to now be 17.1. But if you look carefully for high quality locations that command higher rents, you can do better than that. At Manhattan Condominiums, for example, condominiums that command $1350 a month are being listed for $220,000. That’s a rent ratio of only 13.6. In a city with a rapidly growing population.


The End of the Las Vegas Housing Downturn

May 9, 2008

For Las Vegas, you can call the game. April 2008 will be seen as the end of the downturn. In one month, the following both happened:

For the first time since September 2005, sales of single-family homes in Las Vegas rose from the same month of the previous year, the Greater Las Vegas Association of Realtors reported Tuesday. Home sales jumped to 1,794 in April, up nearly 30 percent from April 2007 and the fourth consecutive monthly increase. ( Source: Las Vegas Review Journal 5/7/08 )

Real Inventory, defined as Inventory you can actually buy and is not in contract, declined from 23718 to 22,719, a drop of 4.2% in a single month

Dispatching the Naysayers:

“This is just because of the Spring selling season.”

“Wrongo. The sales numbers are being compared to last April, also a selling season. This surge is independent of seasonal factors.

“4.2% isn’t that much.”

Nice try. If you annualize that rate out, you end up with about a 50% decrease. That means we’re on our way to an 11,000 inventory, about what Las Vegas had in the second half of 2004.

“Prices are still falling.”

Don’t hold your breath that they’ll fall much more. When inventory is vanishing at this kind of pace, it means that buyers are rushing to buy. And when that happens, sellers find out.

“This is all foreclosure sales.”

t’s a GOOD thing to have lots of foreclosure sales. At Manhattan Condominiums, there are five transactions in contract, as compared to a single transaction earlier in the year. These units have been priced under market and they’re moving quickly.