Not Leaving Las Vegas——Housing Bubble 2.0 Popping Again

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1)  Vegas end-user, fundamental, shelter, single-family housing demand has been weak for some time (sales at 7-year lows in January).

But, “something happened” notably in the speculative “condo” market over the past few months.

This is a huge red flag, as Vegas is a leading indicating market with respect to speculative demand and has the same condo demand cohort profile as other massively over-built and mal-invested “hot condo markets” around the country.

Like Miami, LA, San Diego, San Fran, and New York, the Vegas condo market is a melting pot of unorthodox supply, demand, and capital;  unorthodox capital that looks to be drying up as quickly as it came to Vegas.

 

2)  The January data;  looks like a profile of another condo bubble popping in real-time.

These data are mind-boggling.

Vegas is a fun market to analyze. That’s because it is a hybrid of end-user, fundamental, shelter buyers and the most speculative buyers around.

  • Single-family Residence (SFR) sales down 13% YoY, at 7 year lowsdown 39% from Jan 2012, a no uncertain demand crash;
  • Condo sales down 11% YoY, at 7 year lows;  down 33% from Jan 2011;
  • SFR new listings up 10% YoY;  Condo listings up 30% YoY;
  • SFR month’s supply at 1 months, up 8% YoY, a 4-year high;
  • Condo month’s supply at 7.7 months, up 19% YoY, a 4-year high
  • Available SFR’s WITHOUT offers up 13% YoY;
  • Available Condo’s WITHOUT offers up 36% YoY;
  • Average Condo list price of available units WITHOUT OFFERS up 143% (Another condo bubble!)

Bottom line:  They kept building and building ever more expensive condos until suddenly, over the period of a few months, the market crapped itself.  This, at a time when foreign currencies buy far less than a year ago, supply is through the roof, and more supply is in the development stages pipeline than since 2006. This is 2007/08 all over again.

 

3)  End-user, shelter demand…NO “RECOVERY” YET

Single-family demand has been weak for a long time, ever since new-era spec-vestors packed their balls and bats and left town.  Sure, end-user demand is up marginally from the debts of the Armageddon lows, but with rates 40% lower and the Fed’s, Gov’t, and corporate balance sheet’s loaded with $10s of trillions in more debt tham in 2007, I would hope so.

But, there has been no end-user, fundamental, durable “recovery” in single-family shelter housing.

And if end-user housing demand won’t manifest and keeps hitting low after low with rates at 3.5% — and a backdrop of a “robust labor market, strong economy, and the greatest increase in debt known to mankind” — then it never will.

Bottom line:  After so many years and demand continuing to contract, it’s time to call a spade a spade.   That is, there has been no end-user, shelter-buyer, fundamental “housing demand recovery”.  Simply, a “house price recovery” in the absence of robust demand, which was created by everything other than end-user, owner-occupied, fundamentals.  This is evident in virtually every corner of the US.  What makes this “price recovery” so unusual and suspect is that price is a “symptom” of demand and real, durable house price appreciation can’t sustain without it.

 

4)  This bubble just popped.  Below are data from the Jan 2015 GLVAR report released this week.  Wild YoY volatility. Just like in 2007/08.

Bottom line:  In a “normal” market, prices are a “symptom” of demand and supply and cannot sustain gains or a counter trend indefinitely.  As such, based on supply being back to between 7 and 8 months and sales being at 7-year lows, prices have to be feeling a ton of gravity.

VEGAS DISASTER JAN 2015 2

 

Las Vegas macro (single-family + condo) trends

Weak demand, soaring supply, and the path of least resistance to higher volume, which housing always strives to achieve, is through lower prices.

Vegas Pres Chart Jan 2015

 

Disclaimer.  I love Las Vegas.

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