The final count is still coming in, but the MLS already reports 3132 closed sales for the month of September in Las Vegas. That will easily break the July record. What’s also impressive here is that we are now getting closings where the sale took place in Las Vegas’ hot summer months as opposed to its balmy spring months. You don’t usually see sales strengthen from spring to summer.
A recent story in the RJ quoted a new research report from Credit Suisse that shows positive signs in the Las Vegas housing market:
“Buyers are back and looking for deals. Traffic levels improved during the summer…Real estate agents noted a growing sense of urgency among buyers to ‘buy while the price is low’ as inventory levels have been steady for several months and sales are starting to improve.”
Robin Camacho, a Las Vegas Realtor was quoted,
“I’m working with so many buyers, it’s unbelievable,” Camacho said. “It’s been tough getting offers accepted lately, even offers for well over list price. Right now, I’m working with at least seven or eight serious, well-qualified buyers — some strictly cash — at the same time, which is incredible, even in a good market.”
Jim Cramer has been converting from bear to bull on housing overall, and he wrote his best analysis yet in New York Magazine. Here are some highlights of his 10 reasons that he thinks housing will bottom in about 9 months:
The converted bears, as well as the panicked sellers desperate to bail out and nervous buyers afraid to jump in, will be dead wrong nine months from now, when housing prices bottom. In fact, I’ll call the precise date of the housing-market turnaround. It will begin on June 30, 2009.
Let me give you ten reasons why everyone who now thinks there’s no end in sight to weakening home prices will look like a fool in nine months and will miss the best opportunity to buy since the 1989–1991 real-estate crash.
1. Two years ago, we were building twice as many homes as in 2008, and the decline in new-home building is now accelerating. At this pace, we could see new-home construction fall an additional 25 percent, back to levels last seen when we had 60 million fewer people living in this country. By next June we won’t be building enough homes to accommodate demand, and the gap between supply and demand won’t be made up by unsold inventory..
6. Come June, the bulk of the reckless 2-and-28 loans—the ones with the low teaser rates for the first two years that sucked people in and then reset at much higher rates, dragging people under—will have moved through the system. These loans have been the biggest source of foreclosed property, so the rate of foreclosures should decline sharply once those loans are off the books, tightening supply and soothing anxious buyers’ nerves.
This one, on household formation, is one of my favorites:
7. We may not think of ourselves this way, but we are still a growing nation: Four million babies are born each year in this country, vastly exceeding the nation’s death rate. Household formation, meanwhile, has held steady at about 800,000 a year. Families have been camped in their apartments or crowding in with their in-laws for some time now. That pent-up demand is bound to find expression and put upward pressure on prices, as credit again becomes easier to get.
Every month the RJ publishes an update on Las Vegas home sales and inventory numbers. And every month readers are left scratching their heads.
Let’s start with the headline,
“Streak of home-sales increases stopped.”
This seems like bad news. But the reality is that we had a tiny drop from July to August (which is one of the slowest months of the year), and sales are still up dramatically over 2007. Predictably, the RJ touts the bad news in the headline, and buries this hugely positive news below:
Sales increased 93.4% from 1,316 in August 2007
In case RJ readers aren’t already confused by the headlines, things get worse. According to the RJ:
The inventory of single-family homes for sale on the Multiple Listing Service declined to 22,710 in August… Another 5,390 condos and townhomes are on the market.
So according to the RJ, if we add SFR to condos and townhomes, there are 28,100 homes on the market available for purchase.
Yet just a few paragraphs later, the RJ says,
Las Vegas-based Applied Analysis showed a reduction in resale inventory to 21,941 as of Sept. 1.
I’m no math major, but even I can tell that something doesn’t add up here. How can inventory be 28,100 homes in one paragraph but 21,941 in another paragraph?
The answer is that Applied Analysis has it right, and the RJ’s quotes from the MLS have it wrong, because they include pending and contingent sales.
As we’ve said before, pending and contingent sales are NOT inventory. The difference between 28,100 and 21,941 is huge, and there is simply no excuse for reporting two completely different numbers without so much as an explanation.
Still not confused? There’s more:
According to the RJ:
Pending sales, or homes under contract to be sold, totaled 7,220 as of Sept. 1, down from 7,339 in the previous week. About 48.8 percent of the contingent units are identified as short sales, suggesting they may still be subject to bank approval.
Here the RJ uses the terms “pending” and “contingent” interchangeably. But these are two completely different terms in the MLS. There were actually 2,916 Pending Sales and 4,259 Contingent Sales on the MLS as of September 1.
The difference is important, particularly when looking at the number of short sales.
Let’s use the RJ figure and assume that approximately 50% of the contingent sales are short sales. That means we currently have around 2,100 short sales.
If the banks reject 50% of those 2,100 short sales currently marked as contingent, that would only put about 1,050 units back on the market, or roughly a 1/3 of a month’s supply. If you took the article at face value you might assume that more than 3,600 homes could be coming back to the market shortly.
August was not, as I suspected, able to break the July sales record of 3100+. We did 2949 sales in July. That number handily beats June, May, and every other month back at least a year.
The general word on contingent sales has been that they are short-sale deals that most likely won’t close. But I didn’t realize until recently how many of the contingent sales are not really contingent at all. I recently went into contract on an underpriced condominium. My offer was an all-cash, close in two weeks offer. The seller was the bank, who approved the offer. You don’t get much more non-contingent than that. But the unit is now listed as C instead of P. I’m not actually an agent, so for all I know that’s how it’s supposed to be listed. The point is that that is one C that is definitely going to close. That’s reassuring.
One of Jim Cramer’s comments caught my eye:
There’s a tremendous amount of household formation, 800,000 every year, Cramer said. Four million babies born each year, divorces, 2.5 million new citizens…
One of the most fundamentals drivers of demand for housing is household formation. When you go from 200 million Americans to 300 million Americans, it creates a lot of new households, each of which has to live somewhere.
In tough economic times, people tend to put off forming households. They live longer at home with parents, or put off marriage. Blanche Evans writes:
Between the birth rate and immigration, legal and illegal, the U.S. should be adding about 1.2 to 1.5 million households annually. In 2007, we added half that number. What does household growth mean to housing?
Household growth is a good indicator of the economy. When money’s tight, people tend to double up. More grown children fail to launch and stay put in their parents’ basements, more renters sign new leases, fewer first-time homebuyers come to the table, which stifles move-up buyers, and the final result is that homebuying stagnates.
The National Association of Realtors argues that there’s a lot of pent-up demand on the sideline:
Since 2005, household formation has jumped back above the historic norm to 1.38 million units per year, with 1.63 of them coming in 2007. However, sales levels have fallen to their lowest levels in nearly 10 years. This recent trend suggests two things. First, a reserve of pent-up demand is being built up. Second, there is some factor precluding these would-be buyers from entering the market. With the economy slowing, employment and income fears may be weighing on potential buyers. Financing has improved at the lower price-range of the market, but jumbo rates are artificially high, and lending standards have tightened. Uncertainty over both issues as well as the foreclosure situation has likely created much consternation. Regardless of the reason, would-be buyers are sitting on the side-lines, but the steady march of an expanding demand base will not allow them to rest there for long. This pent-up demand will begin to strain the relatively tight rental market, forcing up rents until households opt to reconsider their confidence, reevaluate their affordability, and decide to jump back into the market.
The always-thoughtful Tony Crescenzi of Miller Tabak, in a note this morning, says that the slide in new home inventory “is still more than 1.5 million above normal, but improvements are occurring. The inventory figure is foremost in terms of what is next for prices.”
He further points out: “The amount of new dwellings needed each year is roughly 1.1 million or 1.2 million because of increases in household formation related to population growth. This means that the amount of new construction is running about 400k to 500k below the level of household formation, an amount that will take a significant bite out of the level of excess inventory.