It ain't over until it's over
Inside Liberty Watch Today - Jan. 23, 2006
A number of financial experts are predicting the demise of the Las Vegas housing market for 2006. Investors were 35 to 40 percent of market in Las Vegas last year according to Frank Nothaft, chief economist for Freddie Mac. "Las Vegas generally runs above the national average in investor and second-home purchase activity," Nothaft said recently. "It's beginning to raise flags."
Fortune magazine projects housing prices in Las Vegas to fall over seven percent this year and another five percent next year. Fortune believes the housing market here is 38 percent overvalued.
But local housing expert Steve Bottfeld sees the market differently. After setting a record in 2005 with over 38,000 new-home closings, Bottfeld told his Crystal Ball '06 seminar crowd last Friday that 40,000 new homes would be sold in Las Vegas this year. He believes the resale market will also be strong with 60,000 closings.
"The second half of this year will be a barn burner," Bottfeld predicts. Excess inventory is being sold off rapidly and he believes there may be a shortage of new home product by the middle of the year. He says the new home inventory number is currently 4,200 homes, but will quickly fall to 3,000 units by March.
Instead of prices falling, Bottfeld, the EVP for Marketing Solutions, a consumer research firm, sees the new home median price increasing eight to twelve percent this year, while existing-home prices will increase five to eight percent. And while experts say investors have left the local housing market, Bottfled contends that they are now returning to the market. "What have left the market are speculators," Bottfeld said.
What's driving the demand for housing is the influx of people moving to Las Vegas for the many jobs being created on the Strip and beyond. Between just the MGM's CityCenter project and Boyd's Echelon project there will be $10 billion of investment made on the Strip over the next few years.
Dennis Muewshaw from the Clark County Department of Aviation in his presentation outlining expansion plans for McCarren Airport said that $2.6 billion in new projects are planned by the airport between now and 2011. And the Ivanpah airport will cost $4 billion just for its first phase.
In addition to jobs, retiring baby boomers will drive the demand for housing according to Bottfeld. The leading edge of the baby boomer generation is turning 60 at a rate of nearly 8,000 per day. Boomers account for a quarter of the population and Bottfeld points out that these baby boomers aren't downsizing and aren't slowing down. To illustrate his point he asked his seminar audience to close their eyes and picture Frank Sinatra when he was 62 years old and compare Old Blues Eyes to today's 62 year old Rolling Stone Mick Jagger. "That's the difference between the generations," Bottfeld quipped.
Baby boomers want to be entertained and time is what they value most. So, builders must combine residential projects with entertainment options such as, shopping and gaming. The resistance to neighborhood casinos will fall dramatically in the next few years Bottfeld predicts.
Countrywide Financial's Joe Anderson also spoke to the Crystal Ball crowd and said that there is no housing bubble. "The next 10 years will be great for real estate," Anderson said.
Anderson, who is the Senior Managing Director for Consumer Markets, made it clear that the mortgage industry would continue to do all it can to overcome the largest obstacle to home ownership - the down payment. That means 100 percent financing in the form of 80-20 mortgages and the like are here to stay.
Anderson believes the criticism of pay option adjustable rate mortgages is unfounded. Pay option ARMs allow borrowers to make low initial payments that do not cover the interest, with the unpaid interest being added to the loan's principle to be paid later. "Since when is giving the customer a choice a bad thing?" Anderson asked the 1000 attendees, many of which were real estate agents.
Anderson also pleads the case that demographics for the housing market have never been better. While echo-boomers and Gen-Xers are buying their first homes, baby boomers are buying second homes.
Both Anderson and Bottfeld believe interest rates will remain relatively low for 2006, also aiding the housing market.
A difference of opinion is what makes a horse race. For those of us who tend to be on the gloomy side, Bottfeld and Anderson's bullishness seems overdone. But, Mr. Bottfeld has been right many more times than he has been wrong with his predictions over the past few years. I wouldn't bet against him.
Doug Fench, Liberty Watch Columnist
