Real Estate in Vegas? It's Hot, Hot, Hot
Inside Liberty Watch Today - Aug. 1, 2005

"Some of you in this room will see the median price of a home in Las Vegas be $1 million," SalesTraq's Larry Murphy told a packed audience at the Marketing Solutions 2005 Crystal Ball seminar. "Some of you younger people."

Wow. Imagine a one million dollar median home price. Reminds a person of when James Glassman predicted a 36,000 DOW. But, anything is possible, with Ben "printing press" Bernanke possibly taking over as Federal Reserve Chairman in January.

It will be a tough act for him to follow, nobody has created more money in the history of the world than Alan Greenspan and we've seen where it went-first stocks, then bonds, and now houses. Besides, if home prices increase 25 percent per year (which is what some people expect) for the next just over five years, we'll reach a million dollar median.

With the median new home price now being $300,000 give or take a few bucks, and median income in the $43,000 range (the ratio is roughly 7 times), in order to maintain that ratio (one of the highest home price to median income ratios in the country), a million dollar median home price would mean a median income of just short of $143,000; hard to imagine anytime soon.

For the moment, condo conversions are keeping the median price down. Murphy indicated that 28,704 condos had been mapped over the past 18 months, and this didn't include apartment units that had been mapped as condos years ago when they were built. To illustrate how hot the condo conversion market is, Murphy asked anyone in the audience that was associated with a condo conversion project to raise their hands. About half the audience had a hand up.

Murphy told the crowd that there are more active subdivisions in Las Vegas than ever-439. And there are now more than 10,500 resale homes listed on MLS, with average days on the market increasing from 19 days to 48 days.

Despite all of this supply, Stephen Bottfeld of Marketing Solutions says we're in a new boom. A boom that started in July and the reason is that builders have learned to control supply. Bottfeld mentioned investor sales, which peaked last spring at 33 percent of total sales, but are now down to 14 percent of sales.

Bottfeld and Murphy have developed an inventory figure comparing permits and closings with the use of a time lag accounting for construction time. They estimate that right now there is an inventory of 4,201 units. This is down from 7,000 in January. They estimate the Las Vegas market has a six-week supply of new homes on the market and that the resale supply is three months.

Bottfeld told the crowd that there were 4,500 more sales than permits pulled in the last 12 months, and that by the end of summer there will only be two weeks of new home inventory available and that by year-end, there will be no inventory; a situation Las Vegas experienced in the first half of last year.

This lack of inventory will push up prices, but will that slow sales? No, according to Bottfeld, because many of the new homebuyers are coming from California, where the median price for the entire state is $500,000. The Las Vegas median of $300,000 looks cheap. And consider what a luxury two-bedroom apartment in Tokyo rents for-$8,160 per month while in New York a luxury two-bedroom apartment rents for $6,550 according to Bottfeld.

Generational differences will also drive the boom, Bottfeld says. People think baby boomers (people born from 1946 to 1964) will start downsizing, and those people are wrong believes Bottfeld. "They [baby boomers] never get old, and they won't retire because they are defined by their jobs" he says. Baby boomers will 'treat themselves,' by purchasing upscale homes, rather than downsizing like their Depression baby parents have. Every seven seconds, someone is turning 50 years old.

Time is also important to baby boomers, they have plenty of money, but are lacking in time. Thus, they want convenience. They want things done for them. This leads to four housing trends in the Las Vegas market: Mixed-use suburban projects, Downtown lofts, Fractional interest units, and Suburban mid-rise units.

Bottfeld reiterated his prediction that the Las Vegas valley would grow to a population of four million by 2027, and with 87 percent of the land in Clark County owned by the Federal Government the only place to go is up.

The new homebuyer in Las Vegas is changing. When Bottfeld first began doing his buyer surveys 12 years ago, 94.1 percent of buyers were Caucasian, today 60.6 percent of buyers are Caucasian, and the median age of buyers has fallen to 42 years old.

In conclusion, Bottfeld told the crowd-the vast majority of which make their livings in real estate-that the "only bubble in Las Vegas is in a champagne glass."

Meanwhile in Barrons, Merrill Lynch's David Rosenberg was quoted as to his view of the housing market nationwide. Real estate has accounted for 70 percent of the rise in household net worth since 2001. More than 40 percent of private sector jobs created since 2001 have been in real estate related industries. Twenty-eight percent (28%) of all mortgages are "Subprime" (vs. five percent five years ago). Mortgage standards have declined 13 percentage points over the past three years. Forty-two percent of first-time buyers put no money down on their home purchases last year. Over half of homebuyers in hot markets use adjustable rate mortgages (over 60 percent in California). Nationwide, home prices grew 6.7 percent faster than incomes last year. From 1955 to 1995, home prices rose at the rate of inflation or 0 percent in real terms. Since 1996, homes prices have risen 45 percent in real terms. Twelve percent of homebuyers devote half of their incomes to mortgage payments, over a third pay over a third for mortgage payments. Affordability is now at a 13-year low. Two million housing starts per year vs. only 1.6 million new family formations. Twenty-three percent of home sales are to investors. Twenty-five percent of American's believe now is a good time to buy a home and expect continued appreciation—a 25-year high in bullishness. Rosenberg believes that 60 percent of the country is in a housing bubble; defined as "where the ratio of house price to income is greater than one standard deviation from the historical mean."

In nearby Arizona, the number of people testing to be real estate agents is up 66 percent from a year ago, a number that is four times the applicants four years ago.

"But, there’s no housing bubble," Barron's Alan Abelson concludes. "We know that because that’s what our friendly real-estate broker and every home builder and would-be home seller we talk to tells us. So, it must be true."

That's right, if we want bubbles let's breakout the champagne.

Doug French, Liberty Watch Colunmist

Bob Beers, Nevada Tabor
Take a look a Bob Beers, Tax Payer's Bill of Rights (TABOR) go to www.nvtabor.com